Household Spending Withstands the Oil Shock
Someone forgot to tell American consumers that they are supposed to be deeply depressed.
Consumer spending rose by 0.5 percent in April, according to the personal consumption expenditure figures released by the Bureau of Economic Analysis on Thursday. In the two months since the U.S. war with Iran started and gasoline prices began surging, spending is up 1.49 percent. That annualizes to a gain of 9.3 percent. Compared with one year ago, consumers are spending 3.9 percent more.
While it is true that the 25 percent rise in prices in March and April played a significant role in pushing up spending, this only highlights consumer resiliency. Many economists expected that Americans would be forced to pull back on other spending because they were spending so much to fill up their gas tanks. That has not happened.
Take a look at the broad spending categories covered by the PCE release. Durable goods spending rose 1.7 percent over March and April, an annualized gain of 10.7 percent. Compared with April of last year, Americans spent 3.2 percent more on durable goods.
Spending on motor vehicles on parts rose 2.2 percent, or an annualized 14.1 percent, even accounting for a small decline in April. Furnishings and durable household equipment dipped slightly in April, but they are up 1.19 percent over the two-month window, an annualized gain of 7.4 percent.
Discretionary categories, where we would expect to see a retreat if consumers were truly being squeezed, are instead advancing solidly. Recreational services spending rose 1.9 percent during the two-month window, an annualized gain of 12 percent. Food services and accommodations climbed 0.95 percent for the month, which annualizes to 5.8 percent.
The weakest categories in the report were clothing and footwear, which grew just 0.37 percent in the two-month period, and health care services, where spending grew 0.48 percent. But even here it’s not clear that the problem was consumers weakening. In the apparel and footwear category, spending was up 7.3 percent in April compared with a year ago, suggesting the recent softness may not indicate consumer stress but just a hangover from the earlier shopping boom. Similarly, health care services spending is up 5.9 percent from a year ago.
About Those Dismal Consumer Sentiment Surveys
This spending growth occurred while the University of Michigan’s index of consumer sentiment fell 12 percent, from an already dismal 56.6 in February to 49.8 in April. In May, it fell another 10 percent to the all-time low of 44.8. So while Americans were ringing up purchases across the economy, they were telling economic pollsters that it was the worst of times.
What explains the divergence? Part of the downbeat consumer sentiment is pure partisan politics. The University of Michigan sentiment index for Democrats fell to 32.8 in April. That’s lower than it was during the 2008 financial crisis or the pandemic lockdowns during President Trump’s first term. A recent Economist/YouGov poll found that 55 percent of Democrats think we’re in a recession, and another 29 percent think we’re likely to be in a recession during the next 12 months.
This is not just Democrats reacting to gas prices. Sentiment was actually lower among Democrats back in November of 2025. And the expectations gauge for Democrats was lower in February, March, and April of last year. A significant share of Democrats are absolutely convinced–or at least willing to say they are convinced—that the economy is in ruins because Trump is president.
But it’s not all partisanship. Sentiment among independents is dismal, and it got worse among Republicans in March, April, and May. Some this is likely gas prices. But the best theory we’ve heard is that consumers are now in a permanent state of despair over the economy because of the cumulative effects of a series of economic disasters that might stretch back to the dot-com bust, through the housing bubble burst and the financial crisis, into the stagnation of the Obama years, the pandemic lockdowns, and the still-lingering Bidenflation catastrophe. It’s hard to feel good about the economy when there always seems to be a disaster looming out there.
Current economic fundamentals, on the other hand, are likely supporting consumer activity. Unemployment is very low and has been for quite some time. Jobless claims are rock-bottom. Corporate profits and share prices are at record highs. Business investment is booming, thanks to the combination of Trump’s tax and regulatory policy and the artificial intelligence buildout. Businesses expect to keep expanding payrolls and to grow sales even faster.
When it comes to the economy, activity matters more than sentiment. And the last few months of data indicate that economic activity—on the demand and the supply side—is rising.
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