U.S. retail sales rose for a third consecutive month in April, but the pace of growth decelerated sharply from March as surging gasoline prices tied to the Iran war constrained household budgets and forced consumers to pull back on discretionary spending. The Commerce Department reported Thursday that retail sales increased 0.5% in April from the prior month, down from a revised 1.6% increase in March.
The slowdown reflects mounting pressure on American families as energy costs climb. Excluding sales at gas stations, retail sales rose just 0.3% in April, down from a 0.7% pace in March. Core retail sales, which exclude autos, gas, building materials and food services, rose 0.5% in April after an upwardly revised 0.8% increase in March. The control group measure, which strips out autos, building materials, food services and gas station sales, also rose 0.5% in April.
Uneven Spending Patterns Emerge
Consumer spending patterns revealed significant weakness across major retail categories. 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%. Sales at gas stations rose 2.8% in April, down sharply from March's 13.7% increase. The lone services category in the report, restaurants, rose 0.6%.
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. 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.
Tax Refund Boost Fading
Economists warned that temporary support from larger tax refunds stemming from President Donald Trump's tax cut legislation helped buoy spending early in the year, but that cushion is rapidly disappearing. 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."
Labor Market Remains Steady
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. However, 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.
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."
Coulter Lewis, co-founder of Sunday Lawn and Garden, said, "They're spending more money on fewer things," and added, "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.'"
Why This Matters:
The deceleration in retail sales growth signals mounting fiscal pressure on American households as energy price shocks from Middle East instability work their way through the economy. With tax refund support from recent tax cuts fading and gasoline prices remaining elevated, consumer spending—which drives roughly two-thirds of U.S. economic activity—faces headwinds in coming months. The pullback in discretionary categories like furniture, clothing, and department stores suggests families are prioritizing essential spending over optional purchases, a pattern that could constrain business revenue and employment growth. For policymakers, the data presents a challenge: maintaining price stability while avoiding measures that could further squeeze household budgets or dampen the resilient labor market that has kept unemployment historically low.