They're spending more money on fewer things
In April, the American economy offered a quiet but telling signal: consumer spending, long the engine of national growth, began to sputter under the weight of energy costs born from distant conflict. Retail sales grew by only half a percent — a steep retreat from March — as gasoline prices swollen by the closure of the Strait of Hormuz claimed an ever-larger share of household budgets. Tax refunds provided a temporary cushion, but economists see that relief fading in May, leaving consumers more exposed to a squeeze that has already begun reshaping how and where Americans choose to spend.
- Gas prices averaging $4.53 a gallon — up $1.35 from a year ago — are draining household budgets faster than wage growth or tax windfalls can replenish them.
- Department stores saw sales fall 3.2 percent in April, furniture dropped 2 percent, and discretionary spending broadly contracted as Americans redirected dollars toward the pump.
- A $22 billion surge in tax refunds temporarily masked the damage, but economists warn that cushion evaporates in May, leaving consumers fully exposed to elevated fuel costs.
- Inflation is now spreading beyond energy: the producer price index posted its largest monthly jump in over four years, and consumer prices rose 3.8 percent year-over-year, rippling into everyday goods.
- Next week's earnings reports from Walmart and Target will serve as the first clear ledger of whether American consumers are already cutting back in ways the aggregate data has yet to fully capture.
The American consumer hit a wall in April. Retail sales grew just 0.5 percent — a sharp retreat from 1.6 percent in March — as gasoline prices, inflated by the geopolitical shock of the Iran war and the closure of the Strait of Hormuz, began consuming household budgets in ways that tax refunds could no longer fully absorb. With roughly a fifth of the world's daily oil supply cut off, a gallon of regular unleaded climbed to $4.53, up $1.35 from a year earlier. Strip out gasoline sales entirely, and retail growth in April was a mere 0.3 percent.
The damage was uneven but pointed. Department stores bore the worst of it, down 3.2 percent. Furniture and home goods fell 2 percent. Online retailers and electronics held steady, and restaurants eked out modest gains — but the broader picture was one of Americans pulling back from anything that wasn't essential.
What had kept spending afloat in March was a temporary reprieve: tax refunds flowing from President Trump's tax-cut law ran $22 billion above the prior year in April alone, roughly offsetting the fuel cost shock. Economists at Pantheon Macroeconomics and Oxford Economics both noted the near-perfect counterbalance — and both warned it was about to end. Refund season fades in May. Gas prices show no sign of retreating. The math, as one economist put it, will reverse.
The labor market has held so far — 115,000 jobs added in April, unemployment claims near historic lows — but inflation is spreading. The producer price index posted its largest monthly jump in over four years. Consumer prices rose 3.8 percent year-over-year, the steepest climb in more than three years, with energy costs pushing into airline tickets, household goods, and beyond. On the ground, businesses like a Boulder-based lawn care supplier reported customers abandoning premium subscriptions and professional services in favor of cheaper, do-it-yourself alternatives — spending more carefully on fewer things. When Walmart and Target report earnings next week, the full shape of this shift should come into clearer view.
The American consumer hit a wall in April. Retail sales growth slowed to half a percent—a sharp drop from the 1.6 percent expansion recorded in March—as gasoline prices, swollen by geopolitical crisis, began eating into household budgets in ways that tax refunds could no longer fully offset.
The numbers tell a story of constraint. A gallon of regular unleaded cost $4.53 on Thursday, according to AAA data, a jump of $1.35 from a year earlier. The war with Iran, which began in late February and led to the closure of the Strait of Hormuz, had cut off roughly a fifth of the world's daily oil supply. That squeeze at the pump left Americans with less money for the things that aren't strictly necessary—new clothes, furniture, a meal out. Excluding gasoline sales entirely, retail growth in April was just 0.3 percent, down from 0.7 percent the month before.
Department stores took the hardest hit, with sales falling 3.2 percent. Furniture and home goods dropped 2 percent. Construction materials and garden equipment barely moved, up just 0.1 percent. Online retailers and electronics stores held their ground with solid gains, and restaurants managed a respectable 0.6 percent increase. But the overall picture was one of Americans pulling back, choosing differently, spending less on discretionary items.
What had propped up spending in March was a temporary reprieve: tax refunds from President Trump's tax-cut law were flowing into bank accounts at a generous clip. In April alone, individual income tax refunds ran $22 billion higher than they had a year prior—equivalent to roughly 3 percent of monthly retail sales. Oliver Allen, senior economist at Pantheon Macroeconomics, estimated that this windfall roughly balanced out the damage from rising fuel costs. But he and other economists saw a cliff ahead. The refund season would dry up in May. Gas prices showed no sign of retreating. What happens then?
"Part of this money will have been saved, but much of it has been spent," Allen wrote in a report released Thursday. "But the flow of refunds will drop sharply in May, leaving consumers far more exposed to the rise in fuel costs." He predicted a "significant reduction" in discretionary spending in the second half of the second quarter. Michael Pearce, chief U.S. economist at Oxford Economics, calculated that tax refunds had offset the gasoline shock at roughly a 2-to-1 ratio. Once the refunds ended and prices kept climbing, he warned, that math would reverse, pressing down on growth.
The labor market, at least, had absorbed the shock so far. Employers added roughly 115,000 jobs in April, a surprisingly solid figure. Weekly unemployment claims stood at 211,000, within a historically low range. But this week brought a cascade of troubling inflation data. The producer price index—which tracks inflation before it reaches consumers—jumped 1.4 percent in April, the largest monthly increase in more than four years. The consumer price index, which gets far more attention, rose 3.8 percent from April 2025, the biggest year-over-year jump in more than three years. Those increases, driven largely by energy costs, had begun rippling through everything from airline tickets and baggage fees to soap and toothpaste.
Some businesses were already feeling the strain. Coulter Lewis, cofounder of Sunday Lawn and Garden, a Boulder-based supplier of lawn care products like fertilizer, had watched sales surge 70 percent from January through late April compared to the prior year. But beneath that growth lay a troubling shift. Customers were avoiding the company's $300-per-year subscription service. At the same time, more people were abandoning professional lawn care—which might cost $1,000 annually—in favor of doing the work themselves with cheaper products. "They're spending more money on fewer things," Lewis said. "That shift from professional service is like: we have to make room for these other increases in our life, so I'm going to try to do this myself." Next week, when major retailers like Walmart and Target report quarterly earnings, the full picture of how inflation is reshaping American spending habits should come into sharper focus.
Citações Notáveis
The flow of refunds will drop sharply in May, leaving consumers far more exposed to the rise in fuel costs.— Oliver Allen, senior economist at Pantheon Macroeconomics
With the refund season behind us and gas prices still rising, that math will reverse in the coming months, pressing down on spending growth.— Michael Pearce, chief U.S. economist at Oxford Economics
A Conversa do Hearth Outra perspectiva sobre a história
So the tax refunds essentially masked what was really happening to household budgets?
Exactly. In March, the refunds were so large they overwhelmed the pain at the pump. But it was always going to be temporary. The refund season has a natural rhythm—it peaks and then it's gone.
And the gas prices aren't going away.
No. The Strait of Hormuz closure means a persistent supply shock. Economists are watching May and June closely because that's when the math flips. No more refunds, but gas is still expensive.
The lawn care story is interesting. It sounds like people aren't cutting back on spending entirely—they're just spending differently.
That's the real story beneath the headline. It's not that Americans stopped buying. It's that they're making trade-offs. Professional services get cut. DIY products get bought instead. Subscriptions get deferred. The total spending might hold, but the composition changes.
Does that worry economists more or less than an outright spending collapse?
Both, in different ways. A spending collapse would be cleaner to predict. This substitution effect is messier. You don't know which businesses will survive the shift and which won't. A lawn care company loses a customer, but Sunday Lawn and Garden gains one. The aggregate numbers might look okay while individual sectors get hollowed out.
What happens if gas prices keep rising?
Then you run out of things to cut. You can defer a subscription, skip professional services, buy cheaper alternatives. But you can't defer filling your tank. At some point, the pressure moves upstream into wages, into hiring, into the broader economy.