U.S. retail sales rose 0.9% month-on-month in May—the highest gain in over three years—with a sharp increase in gasoline station spending.

U.S. retail sales data for May surged well above market expectations, revealing unexpectedly resilient consumer spending—even as consumer confidence plunged to a historic low and oil prices remained persistently high. Year-on-year growth in overall retail sales climbed to its strongest level in three-and-a-half years. According to data released Wednesday by the U.S. Census Bureau, retail sales rose 0.9% month-on-month in May—far exceeding the consensus forecast of 0.6%. The April figure was also revised upward to 0.4%. Year-on-year growth reached 6.9%, the strongest since January 2023. Gasoline station receipts surged 3.4% month-on-month—the largest contributor to the overall strength—directly reflecting the impact of soaring oil prices during the Iran conflict. Even excluding gasoline stations, sales still posted a solid 0.7% month-on-month gain. Following the data release, statements from major retailers—including Target and Walmart—corroborated these figures: both reported that consumer purchasing intent remained stronger than expected amid years of persistent inflation. The data also align with credit-card spending trackers from Bank of America, JPMorgan Chase, and PNC Financial Services Group—all of which recorded substantial support for consumption from tax refunds and stock-market gains. Yet beneath this robust headline lies clear cause for concern: real wages are declining and the personal savings rate is falling, indicating shrinking room for consumers to sustain current spending levels. Lower-income households are especially strained by rising fuel costs, and the 'K-shaped' divergence in consumption patterns continues to intensify. Eleven of 13 merchandise categories posted growth in May. Retail sales growth in May was broad-based, with 11 of 13 categories posting gains. Motor vehicle and parts sales rebounded 1.2% month-on-month—the largest single-month increase in nearly a year. Gasoline stations and non-store retailers (including e-commerce) also posted among the strongest gains. In contrast, electronics and food services saw modest declines. Spending at restaurants and bars edged down 0.1% month-on-month, reversing April’s strong growth—the only service-sector category covered in the retail monthly report. Bank of America analysts had anticipated a significantly stronger-than-expected print even before the data release.

IMF Managing Director: Fiscal challenges in some countries are cause for concern.

Why was the shock smaller than expected? Three reasons. First, inventory buffers. Before the war broke out, global oil inventories were relatively ample. Commercial and strategic drawdowns temporarily eased pressure from reduced energy flows—effectively buying the world time with existing stockpiles. Second, while the price shock was substantial, it did not spiral out of control. Energy prices rose about 25% above pre-war levels; oil futures spiked sharply but gradually retreated following the U.S.-Iran ceasefire agreement. Average 2026 spot oil prices stand at approximately $78 per barrel—well below the most pessimistic prior forecasts of $100. Third—and most critically—AI investment has offset the war’s negative impact. Georgieva used a vivid term: 'a tug-of-war.' On one side, disruptions to Gulf energy supplies exert downward pressure; on the other, the AI investment boom delivers powerful upward momentum—two forces now locked in near-equal contest. The upward pull comes from AI. Data centers, semiconductors, power infrastructure, and software investments are transforming AI into a tangible macroeconomic driver. In the United States, AI-related investment already accounts for a large share of GDP growth. Strip away AI’s contribution, and the U.S. economy would look markedly weaker. This effect is spreading across Asia—through semiconductor exports, tech hardware manufacturing, and capital inflows—all extensions of AI-driven prosperity. The downward pressure stems from war and geopolitical conflict: elevated energy prices, supply-chain disruptions, renewed inflationary pressures, and intensifying trade frictions—all weighing on global growth. These opposing forces have collectively trimmed global growth from 3.5% to 3.0%. Though this appears a modest slowdown, profound structural shifts lie beneath the surface. What truly merits attention in the IMF’s report is not the headline global average of 3%, but the massive imbalances concealed behind that number. The global economy is undergoing a K-shaped divergence—and the dimensions of that divergence are more complex than ever before. The first dimension: energy exporters vs. energy importers. The war pushed up energy prices, improving terms of trade dramatically for Middle Eastern oil producers—even amid conflict risks—while hitting energy-importing countries especially hard, particularly low-income nations with limited participation in the AI value chain. Retail gasoline prices rose 30% across Asian emerging markets; liquefied natural gas (LNG) prices jumped roughly 50%. By contrast, U.S. Henry Hub natural gas prices rose only about 10%—because the U.S. is itself a major energy exporter. The same war delivered vastly different degrees of pain across countries. The second dimension: AI beneficiaries vs. AI-peripheral countries. The AI investment boom is not evenly distributed. The U.S. leads decisively; Asian semiconductor manufacturers and AI hardware exporters also captured significant gains. Yet many countries—especially emerging markets and low-income nations—are merely consumers, not producers, of AI technology. They reap none of the benefits from AI-driven capital inflows or export growth, yet bear the double burden of higher energy prices and rising debt-service costs. The IMF report states this plainly: 'Economic activity has weakened in energy-importing countries with limited participation in the technology value chain—including many low-income countries.'

Research Shows US Gasoline Surge Fuels K-Shape Economic Divide

May 6, 2026

A Federal Reserve Bank of New York analysis reveals gasoline prices exceeding $4.50/gallon have created a K-shaped consumption divide, with high-income households maintaining spending while lower-income groups cut back due to war-driven price surges.

bloomberg

2026-05-06

Research Shows US Gasoline Surge Fuels K-Shape Economic Divide

Research Shows US Gasoline Surge Fuels K-Shape Economic Divide

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