Why Gas Prices’ Big March Swing Barely Registered at Other Retailers

At last, nearly two months after the war in Iran began and oil prices spiked, we can test one of the biggest economic claims: that spiking gas prices will knock consumers, imperiling this economic expansion (and stocks’ bull market). March’s US retail sales are in the books! And they show … surging retail spending beyond the gas station. It is one data point and backward-looking, but to us it shows why stocks are moving on quickly.

Total retail sales rose 1.7% m/m in March, beating expectations for 1.6% and speeding from February’s 0.7%.^[i] Since retail sales aren’t inflation-adjusted, you may naturally wonder whether this stemmed entirely from higher gas prices. And spending at gas stations did soar 15.5% m/m.^[ii] Yet excluding gas stations, retail sales still rose 0.6% m/m.^[iii] The only major category to suffer falling sales was the catchall “Miscellaneous store retailers” (novelty shops, second-hand shops, florists, etc.), which fell -0.9%.^[iv] Clothing stores’ sales were flat, but home improvement, health and personal care, general merchandise stores, furniture, e-commerce and even auto sales rose.

This is not what headlines warned would happen when gas jumped in March. Instead, we were told other categories would suffer as households diverted their budgets to fuel. There was some logic in this, as high gas prices do tend to cause substitution—people cut discretionary purchases or switch to cheaper options. They brew a nice cuppa joe at home instead of splashing out on a cappuccino to-go, or they opt for store-brand milk or facial lotion instead of brand names. This is a big reason high gas prices aren’t inflationary as long as money supply doesn’t also spike.

But the data so far indicate we didn’t see much of this in March. Which, when you drill down, makes sense. Gas prices loom large mentally because they are so visible. You feel the sticker shock because it is a thing you have to buy, and it is right there in your face at the pump. Humans also tend to anchor to the lowest price they remember, whatever it was, and see that as the norm and today’s prices as an astronomical atrocity. But the reality is, the average driver is spending about $47 more per month on gas now than in 2024.^[v] As always with averages, your mileage may vary (sorry), but whether you buy a little more or less than a tank or two per month, chances are it isn’t a large enough share of your budget to really make much difference. Gasoline was a whopping 1.8% of total consumer spending last year.^[vi]

That figure includes services, which retail sales mostly omit, but even within this narrower grouping, higher prices barely lifted gas’s importance. March’s 15.5% m/m surge in gasoline spending pushed gas station sales from 7.1% of total retail sales to … 8.1%.^[vii] General merchandise stores (department stores, warehouse clubs, etc.) are a bigger contributor, and you don’t see people handwringing about the risk of BigBoxpocalypse threatening the economy.

We aren’t dismissing the burden higher gas prices cause for lower-income households already struggling to make ends meet, especially those in more rural areas with longer commutes. This isn’t a pain-free development. But markets tend to deal more in broad brushstrokes. And in these broad terms, a $47 jump in monthly gas spending is unlikely to have an outsized effect on household budgets. You might get some substitution, or people will save a little less. Maybe if gas stays high, people skip buying that new leather handbag or belt this autumn. Sometimes the substitution is delayed. But it isn’t like very many entire household budgets are now going to gasoline with nothing left over.

Crucially, for stocks, people still aren’t seeing this. Coverage of March’s retail surprise was pretty glum, writing off the jump as a one-time boon from tax refunds. Once those are spent, pundits warn, the pain will really set in. This creates a low bar to clear for retail activity (and consumption in general) to keep delivering the positive surprise that powers bull markets.

Even better, the focus on consumer spending itself is misguided, considering most spending goes to essential goods and services (including fuel for work commutes, heating and other utilities). The category tends to be pretty stable as a result and tends not to cause recessions. When spending slips alongside the broader economy, it is usually a side effect of problems elsewhere, like business cutbacks. Business investment is the main swing factor. And while everyone is watching consumer spending, businesses are quietly investing. S&P 500 companies are boosting capital expenditures. Commercial and industrial lending is accelerating, hitting 5.7% y/y last month.^[viii] That is fuel for future expansion and growth.

Again, we get it, no one likes paying more for gas. We would much rather put that $47 monthly jump toward a new pair of shoes or a summer trip (or just bank it). But gas prices don’t make or break broader retail, never mind the whole US economy. Stocks see this, even if people broadly don’t.