--- title: "Tax Refund Excitement Fades as US Consumers Face Fiscal Cliff" type: "News" locale: "en" url: "https://longbridge.com/en/news/288095048.md" description: "US consumers are facing a fiscal cliff as the benefits from tax refunds wane and Middle East tensions drive up oil prices, jointly squeezing disposable income. Although US stocks have hit record highs driven by the AI boom, cracks in the consumer sector are widening, with retailers warning of risks of declining spending in the second half of the year. Low-income households are exhausting their funds, and the personal savings rate has fallen to a three-year low, severely testing consumer resilience" datetime: "2026-05-29T16:04:21.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/288095048.md) - [en](https://longbridge.com/en/news/288095048.md) - [zh-HK](https://longbridge.com/zh-HK/news/288095048.md) --- # Tax Refund Excitement Fades as US Consumers Face Fiscal Cliff The two pillars supporting the US economy through consumer spending are weakening: the boost from tax refunds is fading, and Middle East tensions are pushing up fuel costs. Analysts warn that **consumer spending faces a substantial risk of decline in the second half of the year.** While US stocks have repeatedly hit record highs amid the AI and semiconductor boom, the consumer sector is deteriorating. The ebbing of tax refunds combined with energy shocks means consumers may face a cash crunch this summer. The CEO of Kraft Heinz stated that some low-income households have "already exhausted their funds by the end of the month." There is a stark contrast between the market's superficial strength and consumer weakness. The NASDAQ-100 and S&P 500 have consecutively set new highs, but UBS analysts state that "cracks in the consumer sector are widening," with the equal-weight index for consumer discretionary stocks having fallen below its lows during the financial crisis. UBS points out that **the excess cash buffer provided by tax refunds is gradually dissipating, posing a risk of a "fiscal cliff" in the second half of the year. As consumer pressure rises, the Trump team may intensify efforts to advance its "affordability" agenda before the midterm elections.** US stocks are currently still driven by the AI chip and memory sectors, but cracks in the consumer sector are becoming a non-negligible variable. The fading of tax refunds, rising energy prices, and worsening cash flow for low-income households will jointly determine how long US consumer resilience can last. ## Tax Refund Effect Nearing End, Retailers Warn of H2 Pressure The resilience of consumption in this cycle has heavily relied on support from tax refunds. Average refunds of nearly $3,500 helped sustain household spending, with Walmart, Target, and Lowe's all citing the boost to sales from tax refunds in their recent earnings reports. However, this effect is waning. Target explicitly stated that the sales lift from tax refunds will gradually disappear in the second half of the year; Advance Auto Parts expects sales growth to slow as the tailwind from tax refunds dissipates. Meanwhile, **the personal savings rate has dropped to a three-year low, with spending growth continuing to outpace income, indicating that consumers are depleting their financial buffers.** Rising energy costs are further compressing disposable income. The national average price of gasoline has remained above the politically sensitive level of $4 per gallon for nearly two months, and corporate concerns about consumer health have significantly intensified during this earnings season. Gregory Daco, Chief Economist at EY Parthenon, stated: **"The benefits from tax refunds have basically been offset by oil price pressures triggered by the situation in the Middle East. The longer the conflict persists, the more likely it becomes that inflation will remain sticky and consumer spending growth will be eroded."** ## Rising Consumer Credit Pressure, Low-Income Groups Hit Hardest Data shows that pressure on the consumer side is more than just anticipated. Delinquency rates for credit cards, auto loans, and student loans are all trending upward, with low-income groups remaining disadvantaged in the K-shaped divergence. Brian LeBlanc, an analyst at PNC Bank, pointed out that **household financial stability has been a key buffer allowing the economy to withstand high interest rates and high inflation in recent years, but this buffer is narrowing.** Companies such as AutoZone indicated that sales trends in the current quarter showed little improvement over the previous quarter, with cold weather in May further suppressing demand. Consumer discretionary stocks rose 2.3% overall last week, but there was significant divergence within the sector. UBS analyst Mark Paski noted that while retail stocks have shown some recent improvement, hardline retail remains under considerable pressure; Ross Stores rose about 8% last Friday, which is insufficient to prove a broader sector recovery. Paski believes that some oversold consumer stocks present rebound opportunities, provided that suppressing factors such as interest rates, oil prices, and inflation expectations show signs of peaking. However, current data and corporate statements continue to reinforce the bearish narrative, making it difficult to trigger short covering in the short term. Analysts point out that the potential "fiscal cliff" on the consumer side may prompt the Trump administration to intensify efforts to advance its cost-of-living reduction agenda before the midterm elections. Risk Disclosure and Disclaimer The market involves risks, and investment should be approached with caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. 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