Over the past few months, Trump tax rebates averaging nearly $3,500 per person have encouraged Americans to spend freely. But the good times are coming to an end. As these rebate funds dwindle and oil prices surge due to the war in Iran, economists and retailers are warning that American consumers could face financial strain as early as this summer.
Executives and economists warn that U.S. consumers are only months away from financial strain as the Trump administration’s tax rebate program ends and rising fuel costs from the Iran conflict gradually spread throughout the economy.
According to data from the Internal Revenue Service (IRS), the substantial tax refunds resulting from Trump’s signature budget legislation—averaging nearly $3,500 per return—enabled Americans to continue spending generously. However, retailers are preparing for a consumer slowdown driven by rising gasoline prices, which could lead to the world’s largest economy experiencing its earliest growth deceleration this summer.
Gregory Daco, Chief Economist at EY Parthenon, said:
The impact of rising price pressures in the Middle East has largely offset the effects of the tax rebate. The longer the conflict persists, the more likely we are to face an unfavorable situation of more persistent inflation eroding consumer spending growth.
Consumers are the engine of the U.S. economy, accounting for about two-thirds of total economic output. In recent years, consumers have also been a key driver of growth. Strong spending, combined with significant investments by tech companies and robust productivity data, has helped the U.S. economy expand faster since the pandemic than most other developed economies.
Brian LeBlanc, Head of Economic Analysis at PNC Bank, said:
A key reason the economy has remained so resilient in recent years despite high interest rates, high inflation, and repeated shocks is that household finances have stayed strong, enabling consumers to continue spending even as job and income growth have slowed.
The substantial tax rebates stem from the landmark budget legislation signed by Trump—the One Big Beautiful Bill Act, which became law in July 2025. Major retailers such as Walmart and Target reported on their recent earnings calls that the tax rebate policy has boosted sales. Data based on debit and credit card spending from 4 million U.S. households shows that, despite an increasing share of income going toward fuel, consumers continue to spend on other goods.
Home improvement retailer Lowe’s expects the tax rebate policy to continue stimulating spending in June, with Chief Financial Officer Brandon Sink anticipating that, given "uncertainty," potential consumers have set aside part of their rebate funds.
But as the tax refund funds, which began flowing in February, have been spent, some retailers are bracing for fuel prices to claim a larger share of discretionary spending and gradually spread to other parts of the economy. With diesel prices currently near historic highs, transporting goods has become more expensive, contributing to a 2.9% increase in grocery prices in April. Fruit and vegetable prices rose by 6.1%.
Target's CFO, Jim Lee, said that the "upside" from tax refunds "will gradually fade over the remainder of this year" as the costs of war put pressure on American households. Shane O'Kelly, CEO of Advance Auto Parts, said sales may slow before the summer driving season as the company "moves past the recent tailwind from tax refunds."
U.S. consumers are facing pressure to cut spending.
Since the outbreak of conflict in the Middle East on February 28, pressure on consumers has continued to rise. Iran successfully disrupted oil shipments through the Strait of Hormuz, causing gasoline and diesel prices to rise by 50%. According to PNC data, consumer credit card spending on gasoline over the past few weeks has increased nearly 40% compared to the same period last year, and U.S. consumers find it difficult to reduce spending on this essential item.
Bob Eddy, CEO of warehouse retailer BJ's Wholesale Club, said: "Gas prices remain high, creating real financial pressure on households. Further illustrating the issue, our members spent $143 million more at our gas stations in April alone compared to the same month last year."
This war also means that inflation is now outpacing wage growth, causing workers' real incomes to decline.
Citi’s Global Chief Economist, Nathan Sheets, said: “According to our estimates, wage growth has been steadily lagging behind inflation since mid-last year. First, President Trump’s tariffs, and more recently, oil and commodity price pressures related to Iran, have pushed prices higher relative to wages.”
Michael Pearce, Chief U.S. Economist at Oxford Economics, said that spending slowdowns caused by the war in Iran will become a "speed bump" for U.S. economic growth. "This will cast a shadow over what should have been an outstanding year for the U.S. economy."
Some lower-income households may already be feeling the strain—many of whom benefited less from Trump’s tax cuts. Retail sales rose 4.9% year-over-year in April, but much of this increase was driven by wealthier Americans, the primary beneficiaries of Trump’s budget bill, who spend a smaller share of their income on fuel. Bank of America estimates that the top third of income earners saw their tax refunds increase by approximately 13%, while the bottom third saw an increase of about 6%.
Mike Reid, Chief Economist at the Royal Bank of Canada, said: "The benefits from these rebates flow disproportionately to households least affected by inflation pressures. The groups currently feeling the strain—and perhaps enduring the most hardship—are actually middle-income households."
As the war continues, consumers are becoming increasingly pessimistic about the economic situation. The closely watched University of Michigan Consumer Sentiment Index has fallen to a historic low, and the Conference Board’s Consumer Confidence Index has also declined sharply. According to the University of Michigan survey, 57% of consumers believe that high prices are eroding their personal financial situations, up from 50% last month.
Tarang Amin, CEO of e.l.f. Beauty, which sells brands such as Rhode and Naturium, said:
Sentiment is extremely negative across nearly every age group and demographic. I believe fear is widespread. We’re seeing low consumer confidence and widespread fear about inflation and the costs consumers are bearing.
According to data from the New York Fed, signs of financial distress among average Americans have also increased, with delinquency rates rising on credit cards, auto loans, and student loans. Walmart’s CFO, John David Rainey, acknowledged that while wealthier customers are “spending with confidence,” lower-income customers are “more budget-conscious and may be grappling with financial strain.”