American families faced mounting pressure on their household budgets in April as soaring gas prices linked to the Iran war forced cutbacks in everyday spending, even as retail sales continued a modest upward trend for the third consecutive month.
Retail sales increased 0.5% in April from the prior month, according to Commerce Department data released Thursday, down sharply from a revised 1.6% increase in March. The slowdown reflects a troubling reality for working families: when fuel costs spike, something else has to give.
Gas Prices Hit Household Budgets
The average price for a gallon of regular gasoline rose to $4.53 on Thursday, according to AAA, or $1.35 more than a year earlier. The Iran war began in late February and led to the shutdown of the Strait of Hormuz, cutting off one-fifth of the world's daily oil supply. Excluding sales at gas stations, retail sales rose just 0.3% in April, slower than the 0.7% pace excluding gas stations in March. Sales at gas stations themselves rose 2.8% in April, down sharply from March's 13.7% increase, as consumers paid more for less fuel.
A separate measure that strips out autos, building materials, food services and gas station sales, known as the control group, rose 0.5% in April. Core retail sales, excluding autos, gas, building materials and food services, rose 0.5% in April after an upwardly revised 0.8% increase in March, Reuters reported.
Families Cut Back on Essentials
Spending patterns revealed the strain on household finances. Sales fell 3.2% at department stores, 2% at furniture and home furnishings stores, 0.5% at car dealerships and 1.5% at clothing shops. Business at building material and garden equipment stores rose just 0.1%. Online retailers and electronics and appliance stores posted solid gains, with sales at electronics and appliance stores rising 1.4%. The lone services category in the report, restaurants, rose 0.6%.
Coulter Lewis, co-founder of Sunday Lawn and Garden, observed the trade-offs families are making: "They're spending more money on fewer things," he said, adding, "That trade-down from pro service is like, 'okay, well we've got to make room for these other increases in our life, and so I'm going to try to do this myself.'"
Tax Refunds Provided Temporary Relief
Economists said larger tax refunds from President Donald Trump's tax cut legislation helped support spending early in the year, but they expect that support to fade. Oliver Allen, senior economist at Pantheon Macroeconomics, estimated that individual income tax refunds in April were $22 billion higher than in the same month in 2025, equal to around 3% of monthly retail sales and slightly bigger than the hit to households from the jump in gas prices over the same period.
"Some of this money will have been saved, but much of it has been spent," Allen said, adding, "But the flow of refunds will taper dramatically in May, leaving consumers far more exposed to the surge in fuel costs." He expects a "meaningful pullback" in discretionary spending in the second half of the second quarter.
Michael Pearce, chief U.S. economist at Oxford Economics, said higher tax refunds have offset the impact of gas prices by a ratio of around 2 to 1, and wrote, "With refund season behind us and gas prices still creeping higher, that will flip in the months ahead, putting downward pressure on spending growth."
Consumer Confidence Weakens
Consumer sentiment has weakened, with the University of Michigan's latest consumer survey showing people's perceptions of the current economic environment plunged earlier this month, owing to a surge in concerns about high prices for personal finances and major purchases. The report also said U.S. employers added a stronger-than-expected 115,000 jobs in April and unemployment held steady at 4.3%, while weekly applications for unemployment benefits were 211,000, within a historically low range.
Bret Kenwell, US investment analyst at eToro, wrote, "April retail sales echoed what we've heard across corporate conference calls for weeks now: The US consumer remains resilient despite soaring gas prices," and added, "Fuel-price spikes typically take a couple of months to work their way into household budgets, so if energy costs stay high, the second half of the year could present a more complicated setup for consumers, the economy, and the Fed."
The report said the figures are adjusted for seasonal swings but not inflation. Economists had projected a 0.6% increase in retail sales and a 0.2% increase in the control group.
Why This Matters:
The April retail sales data reveals how external shocks like energy price spikes disproportionately burden working families, who must make difficult trade-offs between necessities when gas prices surge. With the temporary cushion of tax refunds set to disappear in May and fuel costs remaining elevated due to the ongoing disruption from the Iran war, households face mounting pressure on their budgets in the coming months. The decline in spending on clothing, furniture, and department stores suggests families are cutting back on basic needs, not luxuries. This pattern underscores the vulnerability of consumer-driven economic growth when wages fail to keep pace with essential costs, and highlights the need for policy responses that protect household purchasing power during energy crises and ensure that economic resilience extends beyond corporate balance sheets to family kitchen tables.