Retail Sales Slow as Gas Prices Squeeze Consumers

U.S. retail spending cooled in April as rising gasoline prices linked to the Iran war left Americans with less money for discretionary purchases like clothing, furniture, and home goods.

According to new Commerce Department data, retail sales increased 0.5% in April after a revised 1.6% surge in March. Economists say consumers are still spending, but the pace is beginning to weaken as fuel costs absorb a larger share of household budgets.

Higher gas prices pressure household spending

The slowdown comes as fuel prices continue climbing following the shutdown of the Strait of Hormuz during the Iran conflict.

The average price for a gallon of regular gasoline reached $4.53 nationwide on Thursday, according to AAA. That is roughly $1.35 higher than a year ago.

As a result, many households are cutting back on nonessential purchases.

Department stores and furniture sales decline

Retail performance varied sharply across sectors in April.

Sales declines included:

• Department stores: down 3.2%
• Furniture and home furnishings stores: down 2%
• Building material and garden equipment stores: up just 0.1%

Meanwhile, some categories continued to perform well.

Stronger-performing sectors included:

• Online retailers
• Electronics and appliance stores
• Restaurants and food services

Restaurant spending rose 0.6%, signaling consumers are still spending selectively despite inflation concerns.

Tax refunds helped support spending

Economists say larger government tax refunds temporarily cushioned consumers from the financial shock caused by soaring energy prices.

Oliver Allen, senior economist at Pantheon Macroeconomics, estimated that tax refunds in April were roughly $22 billion higher than during the same month in 2025.

That increase helped offset the impact of rising fuel costs for many households.

However, economists warn that support may soon fade.

Economists expect discretionary spending to weaken

Experts believe consumer spending could slow more noticeably in the coming months as tax refund season ends and gasoline prices remain elevated.

Michael Pearce, chief U.S. economist at Oxford Economics, said higher refunds previously outweighed fuel-price pressure by about two-to-one.

But that balance is now expected to reverse.

Economists anticipate weaker spending on:

• Clothing
• Home improvement
• Furniture
• Entertainment
• Travel-related discretionary purchases

Inflation concerns continue to rise

New inflation data released this week added to concerns about the broader economy.

Recent reports showed:

• Consumer inflation rose 3.8% year-over-year in April
• Producer prices jumped 1.4% during the month
• Energy costs are increasingly affecting everyday products

Higher transportation and shipping costs are now pushing up prices for:

• Plane tickets
• Baggage fees
• Household goods
• Food items
• Personal care products

Labor market remains resilient for now

Despite growing inflation pressure, the labor market has remained relatively strong.

The U.S. economy added 115,000 jobs last month, while unemployment claims stayed near historically low levels.

That resilience has helped support spending so far, even as consumers report increasing financial stress.

Businesses already seeing consumer trade-downs

Some companies say shoppers are beginning to seek cheaper alternatives instead of cutting spending entirely.

Coulter Lewis, co-founder of Sunday Lawn and Garden, said customers are increasingly abandoning expensive lawn care services and switching to do-it-yourself products to save money.

The company’s wholesale business remains strong, but consumers are avoiding larger recurring expenses such as annual subscription plans.

Lewis said customers are “spending more money on fewer things” as fuel and daily living costs continue rising.

Major retailers may reveal deeper warning signs

Investors and economists are now closely watching upcoming earnings reports from major retailers including Walmart and Target for further evidence of changing consumer behavior.

Those reports are expected to provide a clearer picture of whether inflation and rising gas prices are beginning to significantly weaken household spending across the broader economy.