The U.S. consumer is facing a dual challenge: the tax rebate windfall from the Trump-era tax reforms is nearing its end, while rising oil prices fueled by Middle East conflicts are eroding household purchasing power at an accelerating pace. Several corporate executives and economists warn that the engine of U.S. consumer spending could begin to lose momentum as early as this summer.

The One Big Beautiful Bill Act, signed by former President Trump and formally effective from July 2025, triggered substantial tax rebates. According to IRS data, the average rebate was nearly $3,500, which has supported U.S. retail spending over recent months.

Major retailers like Walmart and Target noted in their latest earnings calls that these rebate funds provided a noticeable boost to sales. However, as the rebate effect gradually wanes, inflationary pressures from persistently high oil prices are rapidly consuming consumers' disposable income. Multiple retailers have begun preparing for a potential downturn in demand.

This shift poses a direct threat to U.S. economic growth prospects. Consumer spending accounts for approximately two-thirds of U.S. GDP, serving as the core driver of economic expansion. Gregory Daco, Chief Economist at EY, stated:

"The boost from the tax rebates has largely been offset by price pressures stemming from the Middle East situation. The longer the conflict persists, the closer we get to an unfavorable scenario of sustained high inflation and eroded consumer spending growth."

The tax rebate windfall is on a countdown. The wave of rebates from the Trump-era tax legislation began distribution in February, providing U.S. consumers with a significant injection of extra funds. Major retailers like Walmart and Target explicitly attributed part of their recent sales resilience to this factor in their financial reports.

Brandon Sink, CFO of home improvement retailer Lowe's, indicated that consumer spending increments driven by rebate funds are still expected in June, as some consumers chose to hold onto the money temporarily "given the uncertainty."

However, this support is fading quickly. Jim Lee, CFO of Target, noted directly that the "upside benefit" from the rebates will gradually dissipate over the remainder of the year.

Shane O'Kelly, CEO of auto parts retailer Advance Auto Parts, also mentioned that as the company moves "past the recent tailwind from tax rebates," sales growth may slow ahead of the summer driving season.

Beyond the impending end of the consumer tax rebate benefit, surging oil prices are also eroding household purchasing power. Since the outbreak of conflict in the Middle East on February 28, energy costs have been pushed higher. Iran's successful restriction of oil transit through the Strait of Hormuz—which previously handled about one-fifth of global crude shipments—has contributed to U.S. gasoline and diesel price increases of approximately 50%.

This shock has spread from gas stations to broader consumption areas. Grocery prices rose 2.9% year-over-year in April, with fruit and vegetable prices up 6.1%, driven significantly by near-record high diesel costs increasing freight expenses.

Tracking credit and debit card spending data from 4 million U.S. households, PNC Bank shows that spending at gas stations has surged nearly 40% year-over-year in recent weeks. Bob Eddy, CEO of warehouse retailer BJ's Wholesale Club, stated:

"Persistently high oil prices represent a real pressure on households. In April alone, our members spent $143 million more at gas stations compared to the same period last year."

Another consequence of the energy price surge is that inflation is once again outpacing wage growth, shrinking workers' real incomes. Nathan Sheets, Global Chief Economist at Citi, pointed out:

"Since the middle of last year, the gap between wage growth and inflation has been widening. Trump's tariff policies, combined with the recent rise in oil and commodity prices triggered by the Iran situation, have collectively pushed price increases above wage gains."

Michael Pearce, Chief U.S. Economist at Oxford Economics, characterized the consumption slowdown induced by the Iran conflict as a "speed bump" for U.S. economic growth, adding it would "take the shine off what otherwise could have been a very bright year for the U.S. economy."

The distribution structure of the tax rebate funds further exacerbates consumption disparities. Bank of America estimates that the top third of earners by income received a rebate increase of about 13%, while the bottom third received only about 6%.

Simultaneously, lower-income households bear a more direct impact from rising oil prices, as energy expenditures constitute a larger share of their total income.

Mike Reid, Chief Economist at RBC, stated:

"The rebate benefit has flowed disproportionately to households least affected by inflationary pressures. It is the middle-income group that is truly feeling the squeeze."

John David Rainey, CFO of Walmart, also acknowledged that while higher-income customers exhibit "ample spending confidence," lower-income customers are "more budget-conscious and may be grappling with financial difficulties."

The deterioration in consumer sentiment is evident across multiple indicators. The University of Michigan's Consumer Sentiment Index has fallen to a historical low, and the Conference Board's Consumer Confidence Index has also declined sharply. The University of Michigan survey shows that 57% of consumers believe high prices are eroding their personal financial situation, up from 50% last month.

Tarang Amin, CEO of beauty brand Elf Beauty, noted that pessimism has "spread to almost all age groups and demographic segments," with consumer concerns about inflation and the cost of living becoming widespread.

Data from the New York Federal Reserve shows rising delinquency rates for credit cards, auto loans, and student loans, indicating increasing financial stress signals for the average American household.

These signs suggest that as the tax rebate windfall fades and high oil prices persist, the driving force of the U.S. consumer spending engine is facing a tangible test.