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Investing.com -- Morgan Stanley says U.S. tax refunds are coming in slightly weaker than expected, raising questions about how much support they will provide to household spending this year.
In a note to clients, the bank’s economist Heather Berger writes that refunds are “trending slightly below our expectations,” adding that the firm had anticipated the fiscal bill would boost consumption “by only a couple of tenths this year.”
Federal refunds are up 14% year over year, just shy of the 15% to 25% range that Morgan Stanley expected.
The average refund is said to be up 11% to $3,462, a softer rise explained by more taxpayers receiving refunds.
Berger notes that the tax rate is now running below last year’s level but above the firm’s forecast, implying “some downside risk to our ~20bp OBBBA boost to consumption in ’26.”
The bigger risk, according to the report, is rising fuel costs. Berger estimates that “an increase of 15% in average gas prices this year (to $3.60 or higher) would more than offset the $350 increase in the average refund.”
That dynamic could weigh disproportionately on middle-income households, though low-income earners, who receive smaller refunds, also spend less on gasoline in dollar terms.
State-level data is reportedly firmer, with tax collections trending higher and withholding pointing to continued income growth for high-earning households.
But at the national level, Berger cautions that “higher gas spending could more than offset the average refund increase,” limiting the overall consumption boost policymakers had anticipated.
