US shoppers tempered their spending in April arising from US-Israel war

Shoppers tempered their spending in April as higher gas prices, fuelled by the US-Israel war on Iran, meant less money left over for some non-essentials like clothing and furniture. But they're still buying, thanks to more generous government tax refunds.

Still, economists worry that spending will fall off more dramatically in the coming months as benefits from the refunds dissipate, and shoppers continue to grapple with the cumulative impact of rising gas prices at the pump.

Retail sales rose 0.5 per cent in April, a slowdown from the revised growth level of 1.6 per cent in March, according to Commerce Department data released on Thursday. March marked the largest one-month increase in retail spending in more than three years, largely because gas prices spiked higher rapidly.

Excluding sales at gas stations, retail sales in April were up 0.3 per cent. That's a slowdown from the 0.7 per cent pace, excluding business from gas stations, in March.

Elsewhere, shopping was uneven.

Sales at department stores fell 3.2 per cent, while sales at furniture and home furnishings stores slipped 2 per cent. Business at building material and garden equipment stores had a modest 0.1 per cent increase. But online retailers and electronics and appliance stores both posted solid sales gains.

The snapshot offers only a partial look at consumer spending and doesn't include things like travel and hotel stays. The lone services category — restaurants — registered a solid 0.6 per cent increase.

The so-called control group — which excludes food services, autos, building materials and gas station sales and is used to calculate economic growth — rose 0.5 per cent. That offered a good sign of solid spending by consumers, economists said.

The Iran war that began in late February has led to the shutdown of the Strait of Hormuz, cutting off one-fifth of the world's daily oil supply. The average price for a gallon of regular gasolene rose again overnight to US$4.53 on Thursday. That's US$1.35 more than it cost a year ago, according to motor club AAA.

Economists had believed that larger tax refunds from President Donald Trump's tax cut legislation would kick-start spending at the start of the year. But soaring gas prices are taking a bigger slice out of American pay cheques, leaving less for things like dining out, new clothes or other treats.

Oliver Allen, senior economist at Pantheon Macroeconomics, estimated in a report published on Thursday that individual income tax refunds in April were US$22 billion higher than in the same month in 2025, equivalent to around 3 per cent 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," he wrote. "But the flow of refunds will taper dramatically in May, leaving consumers far more exposed to the surge in fuel costs."

Allen expects a "meaningful pullback" in discretionary spending in the second half of the second quarter.

Michael Pearce, chief US economist at Oxford Economics, estimates that higher tax refunds have offset the impact of gas prices by a ratio of around 2 to 1.

"With refund season behind us and gas prices still creeping higher, that will flip in the months ahead, putting downward pressure on spending growth," he wrote on Thursday.

Still, US employers have so far defied the economic shock from the war and last month added a surprisingly strong 115,000 jobs. And on Thursday the Labor Department reported weekly applications for unemployment benefits of 211,000, within a historically low range.

But concerning data about rising prices has arrived in waves this week.

The Labor Department reported on Wednesday that the US producer price index — which tracks inflation before it hits consumers — shot up 1.4 per cent in April, the biggest monthly gain in more than four years. A day before that, the closely watched consumer price index jumped 3.8 per cent from April 2025 — the biggest year-over-year increase in more than three years. Those price hikes, again, largely due to soaring energy prices, have begun to show up in everything, from plane tickets and baggage fees to soap and toothpaste.

A clearer picture of how inflation is impacting Americans may arrive next week, when major US retailers like Walmart and Target begin to release quarterly financial results.

Some companies are already seeing warning signs.

Coulter Lewis is the co-founder of Sunday Lawn and Garden, a Boulder, Colorado-based vendor of lawn care products like fertiliser. Lewis noted that from January through to the end of April, sales soared 70 per cent, compared to a year ago. But underneath that growth, he's seeing growing financial strain from customers dealing with higher prices from the gas pump and elsewhere.

Its wholesale business is faring well, but shoppers are leaning away from committing to the company's subscriptions, which cost US$300 a year. At the same time, Sunday Lawn and Garden is benefiting from shoppers trading down from professional lawn services, which could cost US$1,000 a year, to its products and services for do-it-yourself projects.

"They're spending more money on fewer things," he said. "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.'"

-AP