US retail sales rise 0.2% in June as gas prices weigh on receipts

American consumers kept spending in June, but the relief from lower gasoline prices may prove short-lived as Middle East tensions reignite.

US retail sales rose a modest 0.2% in June as lower gasoline prices dragged down receipts at service stations, masking a 0.7% gain elsewhere that signaled resilient consumer spending. The increase matched the median estimate of economists surveyed by Reuters, following an upwardly revised 1% advance in May.

"Consumers are proving more resilient than many expected, but the spending pattern is increasingly bifurcated by income level," said Anna Zhou, economist at the Bank of America Institute.

The Commerce Department's Census Bureau report showed sales excluding automobiles, gasoline, building materials and food services — the so-called core measure that feeds into gross domestic product — rose 0.5% in June after an upwardly revised 0.8% gain in May. Average gasoline prices fell to $4.18 a gallon from $4.61 in May, the Energy Information Administration said, as a temporary ceasefire between the US and Iran sent oil prices lower. Amazon's Prime Day event and the FIFA World Cup tournament provided additional tailwinds, boosting online retailers and restaurant receipts.

The data suggests consumer spending, which accounts for more than two-thirds of the economy, picked up in the second quarter after nearly stalling in the first three months of the year. The Atlanta Fed's GDPNow model is tracking growth at a 1.3% annualized rate for the April-June period, down from 2.1% in the first quarter. But the collapse of the Iran truce last week has sent oil and gasoline prices rising again, threatening to squeeze household budgets just as the critical back-to-school shopping season begins.

A K-Shaped Recovery Takes Hold

The Bank of America Institute's analysis of internal card data showed spending at discount clothiers and value grocers started rising again early this year, with lower-income households trading down five times faster than higher-income earners at discount apparel stores. Higher-income families, by contrast, have continued spending supported by a stock market rally that has boosted their wealth. The Federal Reserve's Beige Book report on Wednesday described consumer spending as having edged up in early July, with several districts noting declines in discretionary items or trading down to more affordable varieties.

The Back-to-School Test

Retailers are bracing for the first major demand test of the second half of the year. Back-to-school spending is expected to reach a record $43.3 billion, according to Deloitte's 2026 Back-to-School Survey, with shoppers prioritizing value over convenience and brand loyalty. Walmart has reduced prices across thousands of products, while Costco has targeted reductions on its Kirkland Signature private-label brand. The question is whether these pricing strategies can hold if renewed conflict with Iran pushes energy, transportation and material costs higher into the holiday season.

This article is for informational purposes only and does not constitute investment advice.