Retail sales remained stagnant in December with weak growth across furniture, clothing and electronics stores, as consumers pulled back amid a slowing job market and high costs
Retail sales were flat in December from the month before and were up 2.4% from last year, according to a Census Bureau report on Tuesday. The stagnant growth was below economic forecasts of 0.4% and is a slowdown from 0.6% growth in November.
The slowdown suggests consumer behaviors are still impacted from the effects of the government shutdown. During the shutdown, over 600,000 federal employees did not receive pay from October through November. Additionally, the federal government delayed SNAP benefits for over 40 million Americans.
“It looks to me that people had to make tough choices and they cut back spending on other things so they could feed their families,” Christopher Low, chief economist for FHN Financial.
Consumer spending contributes to 70% of the economy. While growth in gross domestic product was solid in 2025, the fourth quarter growth is projected to be 3.5% compared to the third quarter’s 4.2%, signalling a slow start for the first quarter of 2026. Low said while the report shows decline in clothing, electronics and motor vehicle sales for December, the January car sales report reveals a continued decline.
“We’re setting up for back-to-back consumer disappointment in December and January,” Low said. “The biggest surprise is just how weak this is across the board, which suggests it’s not a fluke, that there really was a significant shift in momentum.”
The slowdown in retail sales was partly the result of a decline in sales of motor vehicles and parts, which fell 1.1% compared to last December, partly due to cold weather and lower-income consumers facing financial strain from inflation and increased prices. Overall vehicle sales fell by over 600,000 units in January compared to last year. Sales in furniture stores are continuing to trend downwards, lowering 5.6% since December last year.
Economists often exclude car sales from their analysis of retail sales because the category is so volatile, but other sectors also showed weakness. Non-store retailers like Amazon remained flat, picking up 5.3% from December last year, but only by 0.1% from November.
While most sectors fell or remained unchanged, sales went up at health and personal care stores by 6.4% and food services & drinking places by 4.7% since December 2024, suggesting consumers are leaning towards affordable entertainment from restaurants and bars despite financial pressure.
Slowed retail sales growth reveals the K-shaped direction of the U.S. economy, where wealthier Americans have increased their spending thanks to stock market gains, and lower-income households are struggling with the high cost of living and wages that aren’t keeping pace. In addition to strains from the government shutdown, consumer confidence in February has fallen to its lowest levels since 2014 largely due to increased costs, concerns about tariffs and “low hire, low fire” job market.
While higher income consumers supported growth in November, eventually overall consumer spending will return more in line with the pace of income, said Marc Giannoni, managing director and chief U.S. economist at Barclays Capital Inc.
“It looks like in real time, disposable income of the household has slowed quite meaningfully over the past year,” Giannoni said.
