Retail Sales Surge 8% Despite Consumer Pessimism as Iran War Creates New Headwinds

Quick Facts

Retail sales jumped more than 8% in Q1 2024 despite widespread consumer pessimism and geopolitical uncertainty
Top 10% of earners now drive 50% of all consumer spending, creating a K-shaped recovery pattern
Iran conflict pushed gas prices up 15% from February to March 2026, while credit card delinquencies hit 3.3%

Retail sales continue climbing even as consumers report feeling worse about the economy. The disconnect between sentiment and spending reached new heights in Q1 2024, with discretionary retail sales surging more than 8% despite growing consumer pessimism.

The Iran conflict that began in February 2026 has introduced fresh volatility. Gas prices jumped more than 15% from February to March, while food and housing costs climbed over the 12-month period, according to Moody’s Ratings analysts led by Mickey Chadha.

“We expect high prices for essentials and slowing employment picture coupled with the conflict in the Middle East will put a damper on U.S. consumer activity in 2026,” Chadha said.

The spending surge masks a deeper divide in the American economy. For the first time last year, the top 10% of earners drove 50% of all consumer spending. Federal Reserve data shows inflation-adjusted spending on retail goods rose 17% for households earning more than $100,000 since January 2018, compared to just 7.9% for those earning less than $60,000.

“If you are a category like outdoor or a retailer like Macy’s or Bloomingdale’s that is driven by upper-income earners, then things are fine,” according to industry analysis.

This K-shaped pattern explains why some retailers thrive while others struggle. Entertainment venues show the strain. Bowlero’s foot traffic dropped 10.6% from March 9 through April 5, while Dave & Buster’s saw a 5.2% decline during the same period, according to Placer.ai data.

“Placer.ai data confirms a recent shift in consumer behavior: shoppers are decreasing their visits to discretionary retailers and entertainment venues, instead prioritizing consumer staples to stretch their household budgets,” said R.J. Hottovy, Head of Analytical Research at Placer.ai.

Financial stress indicators tell a troubling story beneath the headline growth. WalletHub analysts predict consumers will add $120 billion to outstanding credit card balances this year. Credit card delinquencies reached 3.3% in early 2026, roughly 50% above pre-pandemic lows.

The delinquency rates vary widely by institution. JPMorgan and Citigroup report rates near 2.3%, while Capital One and Synchrony Financial—which serve lower-income segments—report rates of 4.5% and 4.8% respectively.

“Retailers are navigating an environment where calendar shifts, promotions, and temporary tailwinds are masking deeper vulnerabilities in consumer spending,” said Marshal Cohen, chief retail industry adviser at Circana.

The Federal Reserve notes this sentiment-behavior disconnect suggests consumer surveys have become weaker predictors of future spending patterns. Ernst & Young Parthenon found 27% of consumers are pulling back on discretionary spending, even as aggregate sales climb.

“The question is, how much longer can this continue?” said Bernard Baumohl at The Economic Outlook Group, pointing to deteriorating consumer finances.

Economists expect personal consumption growth to slow to 1.5% this year, down from 2.5% in 2023. The sustainability of current retail trends increasingly depends on continued spending by affluent consumers, making the economy more vulnerable to shocks affecting this key demographic.