Consumer confidence is at record lows, but Americans are still spending

When the Census Bureau releases retail sales numbers for March on Tuesday, it will be the first look at how consumers are doing since President Donald Trump launched a war in the Middle East.

There may not be much visible impact from the war in that particular data, yet — every expectation is that retail sales were likely strong in March.

Elizabeth Pancotti, managing director of policy and advocacy at the Groundwork Collaborative, said there are two reasons for that: “One is, it is tax refund season. And we know that every tax refund season, we see a bump in retail sales as folks spend those one-time refunds. And two, as prices go up, retail sales go up.”

And prices have been going up.

But Pancotti said refunds, which are bigger than usual this year because of last year’s budget bill, are the main reason for the expected bump in spending. That infusion of cash is likely making people less sensitive to price increases from both tariffs and the war in Iran — at least, for now.

“I suspect as we head out of tax season, this is really the inflection point in all of that data,” Pancotti said. Especially if the war continues and prices keep rising.

But Mark Mathews, chief economist at the National Retail Federation, said that is still an “if.”

“We’d need to see at least a few more months of higher prices, I think, before it really begins to impact consumers' ability to spend,” he said.

Inflation fears and the war are already affecting how consumers feel about the economy. The latest consumer sentiment numbers are the worst they’ve ever been.

“But like we have seen since 2020, there has been a complete disconnect between consumer psyche and consumer spending,” Mathews said.

Gas prices have a big impact on consumers’ moods, and they’re now about a dollar higher than before the war. Wendy Edelberg, nonresident senior fellow at the Brookings Institution and a principal at the strategic advisory firm WestExec Advisors, said that translates to roughly $70 dollars more a month, on average, for a two-car household.

“That's unpleasant. But I don't think that that's enough to get people to radically change their spending plans,” she said.

One thing that could change consumer habits? Oil and gas prices could stay high and push the cost of all sorts of other things up down the line.

“The way that the war is going to show up is through grindingly higher inflation that just comes more broadly,” Edelberg said. But that’s going to take a little time.