ECONOMY April 1, 2026

American Consumers Were Spending Fine Before the Iran War. Now They're Not.

The Commerce Department released delayed February retail sales data on Wednesday, showing a 0.6% monthly gain — the strongest in seven months. But the data reflects consumer behavior before the Iran war began on February 28. Since then, oil prices are up more than 45%, the national average gasoline price hit $4.06 per gallon this week for the first time since 2022, and economists say the spending picture has materially changed.

The February Numbers

U.S. retail sales rose 0.6% in February 2026, the largest monthly increase since last July, following a downwardly revised decline of 0.1% in January, according to the Commerce Department's Census Bureau. (Source: Reuters/Census Bureau, April 1, 2026) Economists polled by Reuters had forecast a 0.5% gain after a previously reported 0.2% drop in January — the February figure came in ahead of expectations.

Total retail and food services sales were $738.4 billion (seasonally adjusted), up 3.7% from February 2025. (Source: ETF Trends, citing Census Bureau advance estimate, April 1, 2026)

The report was delayed from its original release date. The Census Bureau is still catching up on data following delays caused by last year's government shutdown. (Source: Reuters, April 1, 2026)

Category breakdown (February, month-over-month change):

Excluding auto dealers, retail sales rose 0.4%. (Source: AP, April 1, 2026)

"Core" retail sales — excluding automobiles, gasoline, building materials, and food services, which correspond most closely to the consumer spending component of GDP — rose 0.5% after a 0.2% January gain. (Source: Reuters, April 1, 2026, citing Census Bureau)

What Drove It: Tax Refunds and a Car Bounce

Two factors are credited with the February strength. First, motor vehicle purchases rebounded after January weakness, as dealers ran promotions and discounts. Second, tax refunds provided a boost. The average IRS refund was up $350 through March 20 compared to the same period in 2025. (Source: Reuters, citing IRS data)

Christopher Rupkey, chief economist at FWDBONDS, described the dynamic in a note: "Tax refunds are literally saving the economy's bacon in the first quarter. Inflated consumer goods are more affordable at least until the income tax refunds run out." (Source: Reuters, April 1, 2026)

The One Big, Beautiful Bill Act passed last year created expectations of unusually large tax refunds that would drive first-half consumer spending, but Axios reported that the average refund has so far come in "at the lower end of forecasts." (Source: Axios, April 1, 2026)

EY-Parthenon senior economist Lydia Boussour described the February data as confirming "that U.S. consumers are still spending, with little evidence of retrenchment so far." (Source: Axios, April 1, 2026)

The Critical Caveat: February Ended Before the War

The Iran war began on February 28, 2026 — the last day of the reporting month. The February retail data, in practice, captures consumer behavior almost entirely in the pre-war period. The Commerce Department noted the report reflects conditions "before the U.S.-Israeli war with Iran." (Source: Reuters, April 1, 2026)

Since February 28, oil prices have surged. The price for a barrel of Brent crude, the international benchmark, is up more than 45% since the start of the war. (Source: AP, April 1, 2026) The national average retail price for a gallon of regular gasoline eclipsed $4 this week — the first time since 2022 — reaching $4.06 as of the Wednesday data, according to motor club AAA. (Source: AP, April 1, 2026, citing AAA)

Neil Saunders, managing director of GlobalData, wrote: "While the overall numbers are good and suggest a continued trajectory of reasonable expansion for retail, they do not reflect the problems that have arisen since the start of the Iran conflict. Since the start of March our own numbers show that consumer sentiment has soured and that rising gas prices are starting to spook consumers." (Source: AP, April 1, 2026)

The Forward Outlook: Gas Prices, Diesel, and the Tax Refund Cliff

Economists raised three specific concerns about the weeks and months ahead:

1. Gasoline prices are already compressing purchasing power. Gas expenditures are approaching 3% of household median income, according to Patrick De Haan, an analyst at GasBuddy. (Source: AP, April 1, 2026) Samuel Tombs, chief economist at Pantheon Economics, noted the burden is uneven: "The hit to real incomes from higher gas prices is especially regressive, hurting lower-income households disproportionately, while the lift from tax refunds is more evenly spread." (Source: AP, April 1, 2026)

2. Diesel has risen faster than gasoline. The cost of diesel fuel — which powers trucks and freight — has risen faster than retail gasoline, driving up transportation costs across the supply chain. Economists expect a related bump in consumer price inflation, potentially as soon as this month. (Source: AP, April 1, 2026)

3. Tax refunds will run out. Tombs also warned: "Refunds will slow to a trickle by late April, providing little protection if high prices persist." (Source: AP, April 1, 2026) The refund tailwind propping up February and early March spending will largely dissipate within weeks.

Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, offered a more measured view: "I expect consumer spending to be softer in the first half of the year than would have been the case in the absence of the surge in gasoline prices, but I project that energy prices will recede significantly within a few months, allowing real outlays to rebound in the second half of the year." (Source: Reuters, April 1, 2026)

An economist at TD Bank Group, Ksenia Bushmeneva, described February as "a solid report" but separately noted that higher gas prices would lift nominal March retail sales — since the government figures are not inflation-adjusted — while "real spending might take a hit as consumers look to offset higher fuel costs with reduced spending discretionary items, with spending on travel and recreation the most likely areas to be cut." (Source: AP, April 1, 2026)

The Broader Snapshot: What the Iran War Has Already Cost

The retail sales data arrives alongside a broader market context. Reuters noted that the conflict had wiped off $3.2 trillion from the U.S. stock market in March — the S&P 500's worst monthly decline in a year. Higher-income households, whose wealth is tied to equity markets, have been the dominant force in consumer spending; a sustained market decline could weaken that pillar. (Source: Reuters, April 1, 2026)

Separately on Wednesday, the Institute for Supply Management (ISM) reported that manufacturing expanded in March — a positive sign. However, the ISM data also showed supplier delivery performance deteriorating, suggesting supply chain pressures are already building. (Source: Reuters, April 1, 2026 — Reuters noted this in summary bullets; the full ISM figure was not cited in the article reviewed)

Note: Ranked cannot independently confirm the specific ISM Manufacturing Index figure for March 2026 beyond Reuters' characterization in its summary headline. The full data release should be consulted for specific numerical values.

Why It Matters

Consumer spending accounts for approximately 70% of U.S. GDP — a well-documented historical figure. The February retail sales report, while positive, is essentially a baseline snapshot of the pre-war economy. The real economic test is in the March and April data, which will capture the full effect of $4+ gasoline, the Iran war's disruption of global shipping, and the expiration of the tax refund boost.

The picture from economists is consistent: the U.S. consumer entered the war in reasonable shape, but the conditions that supported February spending — cheap energy, tax refund cash, deferred tariff pain — are either already gone or rapidly fading.