US retail sales rise 0.5% in April as consumers keep spending despite war-driven inflation

US retail sales rose in April as American consumers continued to spend despite the inflationary squeeze from the conflict with Iran, the Census Bureau reported on May 14. Advance estimates showed retail and food services sales of $757.1 billion, up 0.5% from March and in line with expectations, marking the third consecutive monthly increase. From a year earlier, sales were up 4.9%.

The headline figure pointed to a resilient consumer, but the details revealed how much of the gain reflected higher prices rather than greater volumes. A meaningful portion of the monthly increase came from gasoline, where sales rose 2.8% after a 13.7% jump in March, meaning households were spending more simply to fill their tanks at war-inflated prices. Stripping out autos, sales rose a firmer 0.7%, while the closely watched control group, which excludes autos, gasoline, building materials and restaurants and feeds directly into GDP calculations, rose 0.5%, its fourth straight gain and slightly above forecasts.

The pace of spending nonetheless decelerated from the prior month, with March's increase revised modestly lower to 1.6%. Economists noted that consumers had received some support from higher income tax refunds and lower income taxes, which provided a near-term cushion against rising living costs. That help, however, looked temporary, raising questions about how long households could sustain their spending as the energy shock continued to erode purchasing power.

Beneath the steady headline, signs of strain were accumulating. Real wages had turned negative as inflation outpaced earnings, the personal saving rate had fallen to its lowest since 2022, and measures of consumer credit stress, including serious credit card delinquencies, were climbing toward levels not seen since the aftermath of the financial crisis. Surveys of household sentiment remained downbeat, with consumers citing high prices and uncertainty as reasons to hold off on big-ticket purchases such as furniture and vehicles.

The category-level data captured that caution. While spending held up across most segments, the strength was concentrated in areas tied to necessities and price increases, while discretionary purchases showed more hesitation. Year-over-year core sales growth, at its strongest in roughly three years, was flattered by the inflationary backdrop rather than by a broad-based surge in real demand.

For the broader economy, the report suggested that consumer spending, the largest driver of US output, would make a modestly positive contribution to second-quarter growth, helping to offset some of the drag from the energy shock. Yet analysts cautioned that the combination of negative real wage growth, a thinning savings buffer and rising debt stress made that resilience look increasingly fragile, particularly if the conflict kept inflation elevated through the summer.

For markets, the data reinforced the picture of an economy still expanding but facing mounting cost pressures. A consumer that kept spending gave the Federal Reserve little reason to ease, supporting the case for steady policy, even as the underlying signs of stress hinted at vulnerability down the line. The dollar and Treasury yields took the report largely in stride, with attention remaining fixed on the inflation data and the trajectory of the conflict.

The April retail figures thus told a nuanced story: American consumers were proving stubbornly willing to spend, but they were doing so against a darkening backdrop of higher prices, shrinking real incomes and dwindling financial cushions, leaving the durability of that spending as one of the key questions for the economy in the months ahead.