American consumers kept spending in April 2026 thanks to tax refunds and stock market gains, but economists warn the shopping spree may soon end as inflation erodes wages and savings hit multi-year lows.
US retail sales posted a solid gain for the third consecutive month in April 2026, though economists warn that rising inflation and depleted savings could dampen consumer spending in the coming months.
According to the Commerce Department’s Census Bureau, retail sales climbed 0.5% in April following a revised 1.6% increase in March. Year-over-year growth reached 4.9%, though inflation-adjusted figures showed a modest 0.1% decline for the month and just 1.1% annual growth.
The retail strength comes as households benefit from larger tax refunds and robust stock market performance. Internal Revenue Service (IRS) data showed the average tax refund was up USD 323 through 25 April compared to the same period in 2025.
Earlier, on 20 March 2026, the IRS announced that over 1.3 million people across the nation have unclaimed refunds for tax year 2022 and face a 15 April deadline to submit their tax returns.
However, several headwinds are emerging. The US-backed conflict with Iran has disrupted shipping through the Strait of Hormuz, pushing up energy and commodity prices. Import costs surged 1.9% in April, marking the fastest monthly increase since March 2022, while gasoline prices jumped 12.3% during the same period.
Rich shoppers drive sales while poor households struggle
The spending patterns reveal what analysts describe as a K-shaped economy, with upper-income consumers driving growth while lower-income households struggle with rising costs. Senior economist Sal Guatieri at BMO Capital Markets noted that the strong equity market rally is supporting spending among wealthier consumers, offsetting pullbacks from those facing higher fuel, transportation and food costs.
Electronics and appliance stores led monthly gains with a 1.4% increase in receipts, while online and nonstore retailers rose 1.1%. Gasoline station sales climbed 2.8% after a 13.7% surge in March. Discretionary spending remained resilient, with sporting goods and hobby stores up 1.4% and food services rising 0.6%.
Rising prices outpace wages as savings run low
Despite the positive headline numbers, several warning signs suggest softer spending ahead. The personal saving rate has fallen to its lowest level in three-and-a-half years, and tax refund season has ended. More concerning, inflation outpaced wage growth in April for the first time in three years, eroding purchasing power.
Some retail categories already show weakness. Clothing store sales dropped 1.5%, furniture retailers fell 2.0%, and auto dealership receipts declined 0.4%. Core retail sales, which exclude automobiles, gasoline, building materials and food services, grew just 0.1% when adjusted for inflation.
Consumer spending, representing over two-thirds of the economy, increased at a 1.6% annualised rate in the first quarter, down from 1.9% in the previous quarter and 3.5% in the third quarter of 2025.
The labour market remains relatively healthy, with first-time unemployment claims rising to 211,000 for the week ended 9 May 2026, still at historically low levels.
However, with households rapidly depleting tax refunds and inflation running ahead of wages, economists expect spending to soften later this quarter. Financial markets anticipate the Federal Reserve will hold interest rates steady in the 3.50%-3.75% range into next year.
