Consumer spending picked up pace in March compared to the previous month, but Americans found themselves shelling out significantly more money at gas stations across the country.
Rising fuel costs stemming from the Iran conflict, which has now entered its eighth week, led to a substantial 1.7% increase in retail spending during March following a revised 0.7% uptick in February, the Commerce Department announced Tuesday. This data represents the initial glimpse into consumer behavior since the Iran war began impacting the economy.
When gas purchases are removed from the equation, the spending increase drops to just 0.6%, boosted partially by government tax refund distributions and milder temperatures.
Gas station revenues jumped by 15.5% during the month.
Other retail sectors also saw gains, with department store sales climbing 4.2% and furniture plus home goods retailers experiencing a 2.2% boost. Internet-based sellers recorded a 1% improvement, while electronics and appliance merchants posted a 0.9% rise.
This data provides only a limited view of consumer purchasing patterns and excludes categories such as travel and lodging. However, the single service sector included – dining establishments – showed a much smaller 0.1% gain.
“It’s a blowout retail sales figure for March,” Heather Long, chief economist at Navy Federal Credit Union, wrote in a report. “Stripping out the big surge in spending on gas due to the Middle East conflict, it’s a solid but more modest 0.6% increase.”
Long observed that tariff effects are evident in elevated electronics and appliance spending due to increased prices. The minimal restaurant growth might signal early consumer pullback as people allocate more money to fuel costs, she explained.
“Overall, the American consumer is still healthy,” she added. “Extra income from tax refunds is helping many households weather this oil shock, but that extra money won’t last forever.”
The Iran conflict commenced February 28 and has blocked the Strait of Hormuz, eliminating one-fifth of global oil supplies.
Near the end of last month, American gas prices surpassed an average of $4 per gallon for the first time since 2022. AAA data shows the national regular gasoline average reached $4.02 on Tuesday—more than a dollar higher than pre-war levels on February 28.
Economic experts had anticipated that unusually substantial tax refund amounts would stimulate spending early this year. However, escalating fuel prices are consuming that additional income.
Consumers face pressure not only at gas pumps but are beginning to encounter unexpected expenses across various areas, including travel costs like increased baggage charges. They will probably see higher prices on numerous products as supply chain effects spread when companies transfer elevated transportation expenses to customers.
The most significant monthly gas price surge in six decades triggered a sharp inflation spike last month, presenting major obstacles for Federal Reserve inflation-control efforts and amplifying considerable political challenges for the White House.
Consumer prices increased 3.3% in March compared to the same period last year, the Labor Department reported earlier in April, rising dramatically from 2.4% in February and marking the largest annual increase since May 2024. Month-to-month, prices climbed 0.9% from February to March, the biggest such jump in almost four years.
When removing unstable food and energy costs, core prices rose 2.6% in March year-over-year, up from February’s 2.5%.
Major retail chains including Target and Walmart plan to announce their fiscal first-quarter financial results next month, providing additional insight into how the Iran conflict affects consumer spending.
Before the war started, shoppers were already exercising caution. Bryan Eshelman, Americas retail leader and partner plus managing director at AlixPartners consultancy, observed his retail clients witnessing customers reducing spending even further now.
“Particularly in the low-end economy, people are shifting from wants to needs,” he stated. He referenced recent March shoe shopping analysis by AlixPartners with the Footwear Distributors and Retailers of America trade organization, showing consumers prioritizing less specialized footwear and more versatile shoes for multiple occasions.
“They know the prices are high, and they’re going to buy fewer pairs,” he explained.
R.J. Hottovy, analytical research head at Placer.ai, pointed out that for seven consecutive weeks, customer traffic at essential retailers like grocery stores exceeded that of discretionary merchants. This pattern reversed during the April 6 week, aided by tax refund distributions and spring break plus Easter spending.
Once data moves beyond Easter patterns, future store visits will depend largely on consumer confidence regarding overall economic conditions and fuel prices, Hottovy stated. The company monitors population movement through mobile phone data.
