U.S. retail sales posted a stronger‑than‑expected increase in February, but economists warned that rising energy costs sparked by the war involving Iran could sap consumer spending in the coming months and weigh on broader economic growth.
Data released Wednesday by the U.S. Commerce Department showed retail sales rose 0.6 percent in February from the previous month, the largest monthly gain in more than half a year and beating market forecasts. The increase was driven by stronger purchases of vehicles, clothing and other goods, and helped offset a weak start to the year that had seen declines in January.
The gain marked a rebound from a revised 0.1 percent decline in January, and suggested Americans were still willing to open their wallets despite persistent inflationary pressures and signs of cautious consumer sentiment. Sales at vehicle dealerships grew 1.2 percent, while nonstore and online retail outlets climbed 0.7 percent, and clothing stores rebounded with a 2.0 percent increase. Core retail sales, which exclude volatile categories and feed directly into calculations for gross domestic product (GDP), rose 0.5 percent.
Analysts said the solid February report partly reflects weather‑driven rebounds after winter storms dampened spending earlier in the year, as well as an anticipated boost from tax refunds. But the data covers spending before the conflict in the Middle East, which erupted at the end of February and has since roiled global commodity markets.
The conflict triggered a sharp surge in oil and gasoline prices, with U.S. pump prices topping US$4 a gallon — the highest in more than three years — as Brent crude benchmarks climbed amid fears that fighting could disrupt supplies and choke vital shipping routes, particularly the Strait of Hormuz.
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Economists warn that such energy cost pressures could dampen consumer spending in the months ahead, especially on discretionary goods and services. When households spend more on gasoline and heating, they typically cut back on other categories such as travel, dining and retail purchases.
“The impact of higher fuel costs is hitting real incomes, particularly for lower‑income households,” said an economist, noting that the offset from tax refunds in early 2026 may be short‑lived if energy costs remain elevated.
Consumer confidence has also been shaken by rising prices and uncertainty over the war’s duration, with surveys showing sentiment at multimonth lows. Higher energy costs are expected to push up overall inflation, adding pressure on household budgets already squeezed by higher food and housing prices.
The February retail figures provide only a snapshot of spending before the full impact of the conflict, which began at the end of the month. Economists cautioned that March and April data will better reflect how rising fuel prices and geopolitical uncertainty filter through to consumer behaviour.
“If higher gasoline prices stick at these levels or move even higher, we’re likely to see retail sales slow,” said a retail analyst. “Consumers will pivot spending toward essentials and away from discretionary items.”
The strong February sales were broad‑based, but not uniform. While online sales and clothing purchases strengthened, sectors such as furniture and food store sales slipped, underscoring uneven patterns in consumer behaviour.
Despite the recent uptick in spending, underlying economic growth remains moderate. GDP growth in the fourth quarter of 2025 slowed to 0.7 percent from earlier quarters, reflecting a deceleration in overall economic momentum. Analysts say that if consumer spending weakens in the wake of energy price shocks, it could contribute to slower growth in early 2026.
Federal Reserve policymakers are watching the data closely as they balance the risks of sticky inflation against signs of slowing demand. Retail sales account for roughly two‑thirds of U.S. economic activity, making consumer purchases a key indicator of overall health.
For now, February’s figures show the American consumer remains resilient, but economists say the war’s economic fallout — especially through higher energy costs — could soon temper that resilience.
