0.5 percent. That's how much U.S. retail and food services sales rose in April, according to TD Economics. The headline gain capped an unexpectedly strong first quarter that lifted company earnings, commercial real estate activity and landlords, but much of the strength reflected one-off cushions such as above-normal tax refunds and elevated gasoline spending. The real test comes in the second quarter, when those cushions dissipate and the underlying health of the consumer will become clearer.

A 0.5 percent nominal gain masked a 0.2 percent fall in real retail volumes after adjusting for price increases, a discrepancy TD Economics highlighted in its May 14, 2026 report by Leslie Preston.

Company results and the refund effect

Major retailers reported sharply improved first-quarter performance, and several executives linked part of the strength to tax refunds. Ross Stores said total sales increased 21 percent year-over-year in its fiscal first quarter, with comparable store sales up 17 percent, and chief executive Jim Conroy attributed some of that strength to higher consumer spending related to tax refunds. Target posted a 5.6 percent increase in same-store sales in its fiscal first quarter, its first positive comparable result in five quarters. Target finance chief James Lee told investors that higher tax refunds helped fuel spending but cautioned that the benefit will fade over the rest of the year.

Analysts described the quarter as surprisingly robust. Neil Saunders, managing director and retail analyst at GlobalData, said, "It was a surprisingly robust quarter." Janine Stichter, managing director and retail analyst at BTIG, added that higher-than-usual tax refunds and increased use of buy now, pay later helped buoy spending and that the underlying health of the consumer will become clearer in the second quarter.

TD Economics, in the report by Leslie Preston, noted important price and category effects under the headline. Nominal retail and food services sales rose 0.5 percent in April, yet real retail and food services sales fell 0.2 percent month-over-month after adjusting for higher prices. Gasoline station receipts were an important driver: sales at gasoline stations climbed 2.8 percent in April following a 14 percent rise in March, boosting the overall nominal series even as higher fuel costs squeezed discretionary budgets.

Mastheads

Online sales continued to outperform. TD Economics reported that non-store retailers, mainly online sellers, posted a 1.1 percent monthly increase and an 11 percent year-over-year gain, underlining the divergence between channels.

TD flagged that higher tax refunds and lower income taxes provided a near-term cushion for spending, while inflation and gasoline prices constrained discretionary purchases.

The pattern in Canada showed similar tensions. Statistics Canada data cited by Retail-Insider indicated overall Canadian retail sales rose with gasoline stations contributing much of the increase, while core retail sales softened slightly as consumers tightened discretionary spending. Retail-Insider also reported that consumer-facing businesses are responding by emphasising experiential retail and technology-driven engagement to capture constrained household spending. Separately, Retail-Insider noted a 19.2 percent increase in energy costs in the consumer price index, a factor that raises operating costs for retailers and reduces households' discretionary budgets.

Commercial real estate and capital markets reflected the mixed retail picture. JLL's United States Retail Market Dynamics Q1 2026 report, dated May 12, 2026, recorded negative net absorption of 4.4 million square feet in the first quarter but said structural supply scarcity kept vacancy at 4.4 percent and supported fundamentals.

JLL reported institutional investors were active, pushing Q1 transaction volume above $15 billion, the strongest first quarter since 2023. Tenant demand concentrated among restaurants, discount retailers and grocers, while apparel and electronics tenants contracted.

Taken together, the company reports, aggregate data and real estate flows suggest the quarter was a reprieve rather than a durable recovery. Above-normal tax refunds, a pick-up in buy now, pay later activity and elevated gasoline-driven spending accounted for a meaningful slice of the upside. That means headline growth outpaced what underlying income and sentiment would imply.

That divergence matters for strategy. Retailers with durable value propositions, flexible omnichannel operations and exposure to foodservice and discount segments appear best positioned to sustain performance as one-off supports fade. For landlords and investors, the Q1 deal activity shows appetite for retail assets where tenant mixes and locations offer resilience, even as net absorption turned negative.

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The clearest near-term test is the second quarter, when the higher-than-usual tax refunds and other cushions unwind and companies must show growth without that tailwind. Originally reported by CNBC.

This article was created with AI assistance.