The Iran war is reshaping how American consumers spend their money, with higher gasoline costs eating into household budgets and prompting a visible pullback in spending on major purchases even as overall retail activity continues to grow.

Retail sales climbed 0.5% in April from the prior month, according to the Commerce Department, marking the third consecutive monthly increase but falling slightly below the 0.6% gain economists had projected. 

The figures are adjusted for seasonal swings but not inflation, meaning some of the gain reflects higher prices rather than more purchases.

Where Americans Are Spending More and Less

The headline number masks significant divergence across spending categories.

Gas station sales rose 2.8% in April, a sharp deceleration from March’s 13.7% surge, which itself reflected the dramatic spike in fuel prices triggered by the Hormuz supply disruption. 

While the monthly pace of gas spending growth slowed, prices at the pump remain far above pre-war levels and continue to claim a larger share of household budgets.

Elsewhere, consumers pulled back on big-ticket and discretionary items. Furniture store sales fell 2%, clothing shops declined 1.5%, and department stores dropped 3.2%. Car dealerships saw a 0.5% decline, reflecting hesitation around major purchases amid economic uncertainty.

On the positive side, electronics and appliance stores posted a 1.4% gain for the month, though signals from within the industry suggest the underlying picture is weaker than that headline implies.

The Control Group Points to Underlying Demand

A key measure that strips out volatile categories such as gasoline and building materials, known as the control group, rose 0.46% in April, higher than the 0.2% gain economists had forecast.

That reading, which economists consider a reliable gauge of underlying consumer demand, suggests that despite the pressure from energy costs and economic uncertainty, American households have not yet significantly curtailed their core spending. 

As long as the labor market holds up, analysts say consumer spending is likely to remain positive even if its composition shifts toward necessities and away from discretionary categories.

The April employment data offered some support for that view, with unemployment holding steady at 4.3% and employers adding a stronger-than-expected 115,000 jobs during the month.

Resilient But Changing

Analysts are noting a pattern that has emerged consistently across both retail data and corporate earnings calls: the American consumer remains active but is spending differently.

Bret Kenwell, U.S. investment analyst at eToro, said April retail sales confirmed what businesses have been reporting for weeks, that consumers are holding up despite surging fuel costs. 

However, he cautioned that the full impact of higher energy prices on household budgets typically takes a few months to fully materialize.

“Fuel-price spikes typically take a couple of months to work their way into household budgets,” Kenwell wrote in a research note. “If energy costs stay high, the second half of the year could present a more complicated setup for consumers, the economy, and the Fed.”

Record-Low Sentiment Is Changing Buying Behavior

Consumer confidence data suggests the strain is real even if spending has not collapsed.

The University of Michigan’s latest consumer survey showed that people’s perceptions of current economic conditions fell sharply earlier in May, driven by surging concerns about high prices both for personal finances and for conditions around major purchases. 

That sentiment shift is showing up most clearly in the categories where spending declined in April, precisely the larger, deferrable purchases like cars and furniture that consumers are most likely to delay when they feel financially pressured.

The appliance sector is offering one of the starkest warnings about where the durable goods market may be heading. Whirlpool reported first-quarter earnings that missed analysts’ expectations by a wide margin, sending its stock down as much as 20% in a single session. 

The company’s CFO said demand for appliances has “reached recession-level lows,” with the industry contracting roughly 7.4%, a pace not seen since the Global Financial Crisis.

Not all signals are negative, however. New orders for computers and electronic products jumped 3.7% in March, leading the overall increase in durable-goods orders that month and extending a strong streak of gains. 

That divergence within the durable goods sector suggests the pressure is concentrated in home-related categories rather than technology, at least for now.