Gas prices are soaring because of the war in Iran. Paychecks are failing to keep up with inflation. Consumer sentiment is abysmal.
For now, Americans are still spending.
Retail sales, which are not adjusted for inflation, rose 0.5 percent in April from the previous month, the Census Bureau reported on Thursday. Sales, excluding cars and gasoline, increased 0.5 percent.
The figures show “a fairly bulletproof consumer overall,” said Thomas Simons, an economist at Jefferies. He noted that higher sales in discretionary categories such as electronics defied a belt-tightening narrative.
“It seems generally the U.S. consumer is not really changing their behavior really very much at all in response to the war in Iran,” he said.
Consumer spending, powered by wealthy households, has been surprisingly resilient for years, even as inflation surged, interest rates rose and tariffs pushed some costs higher.
But as the war in Iran stretches on, data from the past week suggests consumers are under mounting strain.
Consumer prices were up 3.8 percent in April from a year earlier, the fastest pace of inflation in nearly three years, driven by rising energy prices. Wholesale prices — what businesses pay for goods and services — rose last month at their fastest rate in four years, an indication that elevated prices are working their way through supply chains.
The average price of regular gas hit $4.53 per gallon on Thursday, according to AAA, up more than 40 percent from a year ago.
For the first time since 2023, wage growth is lagging inflation. Average hourly earnings are rising more slowly and were up 3.6 percent over the year in April and 0.2 percent from March. Real average hourly earnings, adjusted for inflation, fell 0.5 percent in April.
Lower-income households in particular are feeling the squeeze. Higher-frequency credit card transactions from Bank of America showed evidence that middle- and lower-income consumers were pulling back on discretionary spending in April.
To afford everyday life, many Americans are dipping into their savings and relying on credit cards to get by. The personals savings rate is the lowest it has been since 2022.
“We are seeing increasing price sensitivity and also more caution when it comes to discretionary spending,” said Lydia Boussour, an economist at EY-Parthenon. “Retail sales are holding up on the surface but we are starting to see some signs of pressure.”
The spending picture is less strong in some categories such as clothing when taking the effects of inflation into account, she said.
Consumers might be retrenching more if not for the larger than normal tax refunds this year, which have alleviated some of the pinch from higher prices. The buoyant stock market also continues to enrich affluent households and fuel their spending.
Christian Fulenwider, 24, is already adjusting to higher gas prices by spending less on other goods and services.
Mr. Fulenwider drives 80 miles, round trip, every weekday from his house in Irving, Texas, to his job as a business manager at a university in Denton, Texas. The cost to fill up his truck, a 2018 Nissan Frontier that was a gift from his grandmother, has roughly doubled in the past few months, to about $80 recently from $40 before the war in Iran raised energy prices.
To compensate, he has cut back on dining out with his partner. At the grocery store, he is buying chicken and turkey instead of beef, which is typically more expensive, as well as bulk items including pasta and rice. He has canceled nearly all of his streaming services.
“I’ve trimmed off just about as much fat as I am able,” said Mr. Fulenwider, who makes about $34,000 a year.
But he worries even that is not enough to make up for his heftier gas bill. Since last year, his checking account balance has dwindled to $1,500 from $8,000, partly because he moved to a larger apartment that was closer to his work. A bill from an emergency room visit drained his savings account.
If things get much worse, he is considering asking his boss if he can work remotely one or two days a week to save money on gas.
“I’m down to my last $1,000, which is a pretty far cry from where I was a year ago,” he said.
Sydney Ember covers the U.S. economy for The Times.
The post Consumers Spent More in April Despite High Gas Prices appeared first on New York Times.
