A $166 Billion Tax Refund Can't Save U.S. Consumption; AI Alone Can't Prop Up the U.S. Economy

After the Supreme Court overturned tariffs under the International Emergency Economic Powers Act, approximately $166 billion in tax refunds have begun to be distributed. This is one of the largest tariff refunds in U.S. history, nearly the size of one round of stimulus checks issued during the pandemic. Are American consumers about to receive another “unexpected windfall” of nearly $200 billion? At a time when consumer confidence is at its lowest level in seventy years, can this influx of funds give a much-needed boost to the sluggish U.S. economy?

The University of Michigan’s final May consumer sentiment reading was 44.8—the lowest since this survey began in 1952. For seventy years, U.S. consumers have never felt this pessimistic, not even during the 2008 financial crisis or the COVID-19 shutdown in 2020. 57% of respondents proactively mentioned that high prices are eating into their savings. The Conference Board's data fell to 93.1 in the same month, with its chief economist citing energy inflation triggered by the Middle East war.

April retail sales appeared decent—up 0.5% month-over-month and 4.9% year-over-year—but after deducting 3.8% inflation, real consumption growth is already very limited. In the first quarter, real consumption grew only 1.4%, and even that was mainly driven by high-income households’ spending on services, while goods consumption was nearly stagnant. The Bureau of Economic Analysis noted something worth highlighting in its Q1 GDP report: growth is “increasingly dependent on the drawdown of savings, expansion of credit, the wealth effect from the stock market, and investment activities focused on AI.”

Consumers are depleting savings, swiping credit cards, and relying on the wealth effect from the stock market to maintain their standard of living. This is not a sustainable situation.