As the effect of the large-scale tax cut and tax refund policies implemented by the Donald Trump U.S. administration to stimulate the economy weakens, a series of reports say the Middle East–driven shock of high oil prices is shaking the U.S. economy. Experts see a possibility that consumer expenditure, which has supported the U.S. economy, could slow sharply as early as this summer.
U.S. consumption had held up thanks to the tax refund effect of President Trump's core economic policy, the "One Big Beautiful Bill." According to the Financial Times (FT) of the United Kingdom, U.S. households received an average refund of $3,500, and large retailers such as Walmart and Target said the inflow of refunds helped defend sales.
However, at the end of February, as military clashes between Iran and the United States heightened tensions in the Middle East and Iran succeeded in blockading the Strait of Hormuz, a key route for global crude shipments, the mood shifted rapidly. As international oil prices surged, gasoline and diesel prices in the United States jumped 50% in a short period.
According to PNC Bank in the United States, recent gas station card spending by U.S. consumers rose about 40% from the same period a year earlier. With the burden of fuel, a mandatory expenditure, growing, it means there is less capacity to spend on other consumption categories.
High oil prices are feeding into higher logistics costs, amplifying price pressures across the board. In April, U.S. grocery prices rose 2.9% from a year earlier, and fruits and vegetables jumped 6.1%. FT analyzed, "As inflation outpaces wage growth, the real income of American workers is declining." The Nations Cites Citigroup global lead economist said, "Since the middle of last year, wage gains have not kept up with the pace of price increases," adding, "On top of the Trump administration's tariff policy, the spike in Middle East–driven commodity prices has overlapped."
There are also criticisms that the benefits of the tax cut are concentrated among high earners, further increasing the burden on the middle- and low-income classes. According to Bank of America, the tax refunds of the top third by income rose 13% from a year earlier, but the bottom third saw a growth rate of only 6%. Mike Read, RBC chief economist, said, "Refund benefits were concentrated among the wealthy, who are relatively less affected by price shocks," adding, "The group under the greatest fiscal pressure now is the middle class."
Market sentiment is freezing fast. The University of Michigan consumer sentiment index, a leading indicator of the U.S. economy, recently fell to a record low. Fifty-seven percent of respondents said, "Personal financial conditions have worsened due to high inflation." Data from the Federal Reserve Bank of New York also show warning signs of slowing consumption, with delinquency rates on credit cards and auto loans rising together.
The U.S. retail industry is on high alert for potential consumption contraction ahead of the full-fledged summer vacation season. Some companies are said to have entered emergency management, including inventory reduction and expense cuts. Michael Pearce, chief economist at Oxford Economics, projected, "The consumption slowdown that emerged after the Iran war could throw cold water on the previously solid trajectory of U.S. economic growth."