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The deadline for filing tax returns in the United States is April 15, often evoking both fear and impatience: the administrative burden of filing and the prospect of an unexpected refund. This year, that refund could be much larger than usual, and the timing couldn’t be better.

According to economists at Goldman Sachs, tax refunds are currently 17% higher than last year, amounting to a windfall of $50 billion for consumers by the end of May compared to the same period last year.

This windfall is expected to provide a much-needed boost to consumers and the economy as a whole, following the surge in fuel prices that followed the outbreak of the war against Iran two months ago.

Indeed, last month, consumers seemed to be relying on expected refunds to cope with the record increase in gasoline prices. Retail sales in March

rose much more than expected, according to figures released on Tuesday.

This resistance prompted the Federal Reserve Bank of Atlanta to raise its GDPNow model estimate for first-quarter growth to an annualized rate of 1.2%, up from 0.9%, marking the first upward revision in a month.

This is a modest improvement, but a welcome one. Consumption prospects were reasonably good at the beginning of the year; the war in Iran has since considerably darkened them, prompting a downward revision of growth forecasts.

The question now is how long the boost provided by refunds will last.

Consumer spending is expected to be high in April. Significant one-time refunds are generally considered discretionary income and tend to be spent quickly rather than saved, especially when households are facing significantly higher costs elsewhere.

But this timing also means the boost could quickly fade if the energy price shock persists, forcing consumers to dip into their savings that have already been depleted in recent months.

Morgan Stanley economists offer a thought-provoking analysis. They predict that the average increase in tax refunds will only offset the surge in gasoline prices if the average pump price does not exceed $3.60 per gallon this year. This figure is still above $4.00.

Unless there is a sharp and rapid drop in prices, the pump will swallow up the refunds. According to Oxford Economics, growth in consumer spending in the second quarter

could be weak despite the windfall from refunds, possibly below 1%.

Goldman economists are also not optimistic about consumers’ ability to withstand rising pump prices for long before cutting back their spending.

In their base scenario, the price of a barrel of Brent

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is expected to fall to $80 by the end of the year, having averaged around $100 since the war broke out on February 28, against $70 the day before,
resulting in a $70 billion annual loss for consumers. At current prices, this loss is estimated at

$140 billion per year.

But don’t call for the capitulation of the American consumer just yet.

Average household balance sheets are in good shape, especially given how well stock prices have held up. Predictions of the collapse of the American consumer in recent years have consistently underestimated the strength of this “wealth effect.”

Plus, according to Motio Research, real household income has never been higher since the data series began in 2010, excluding the skewed year of 2020 due to the pandemic.

While the Consumer Stress Index released on Wednesday by the Kearney Consumer Institute shows that 37% of American consumers felt stressed about debt and savings in the first quarter, compared to 10% in the last quarter
of last year. But a persistent trend in recent years is the massive disconnect between what consumers report feeling and the actual impact of their anxiety on their spending.

Low-income consumers are indeed much more vulnerable, as they spend a larger share of their income on energy. But they are only responsible for a limited part of overall U.S. expenditure, so overall economic figures can remain high even if large segments of the population are struggling.

Ultimately, tax refunds should delay the rise in pump prices, but, as with everything related to the crisis, the question is how long this can last.