US Retail Sales Outperform as Consumers Burn Through Tax Refunds

The Commerce Department reported that the May increase follows a downwardly revised 0.4% gain in April. Much of the recent momentum is tied to volatile factors rather than underlying strength, specifically the spike in gasoline prices that inflated receipts at service stations. With national gas prices hovering near four-year highs during the period, consumers redirected a larger portion of their budget toward fuel costs, effectively draining their savings at a faster clip. By April, the national saving rate had already plummeted to a four-year low.

Core retail sales—a metric that excludes volatile items like automobiles, gasoline, and building materials—rose by 0.7% in May. This figure, which closely tracks consumer contributions to GDP, suggests that while spending remains active, the tailwinds are weakening. Data from PNC Financial indicates that lower-income households are burning through tax refunds at an accelerated pace, with 60% of these funds exhausted by this point in the year compared to 43% in 2025. Despite these headwinds, the Federal Reserve is expected to maintain its benchmark interest rate between 3.50% and 3.75%, as easing oil prices mitigate concerns over immediate inflationary pressure. The Atlanta Fed currently tracks second-quarter GDP growth at 2.8%, a significant jump from the 1.6% pace recorded earlier this year.