Disappointing Holiday Season: December Retail Sales Were Flat, Falling Well Short of Estimate

Why It Matters

Flat holiday sales signal weakening consumer demand and could temper GDP growth, influencing Fed policy and retailer strategies.

Key Takeaways

• December retail sales flat, missing 0.4% forecast
• Annual sales up 2.4%, below 2.7% inflation
• Lower‑income consumers cut spending, top tier still strong
• Building materials up 1.2%; most categories declined
• Autos, furniture, clothing drives flatness, tariff pressures

Pulse Analysis

The Commerce Department’s December retail‑sales report showed no month‑over‑month growth, a stark contrast to the 0.6% rise recorded in November. Adjusted for seasonality, sales were flat, falling short of the 0.4% gain economists had forecast. Year‑over‑year, the 2.4% increase lagged behind the 2.7% consumer‑price index, indicating that real purchasing power eroded during the holiday period. Analysts attribute the slowdown to a combination of severe weather disruptions, lingering tariff effects on durable goods, and persistently high inflation that squeezed discretionary budgets. The flat December figure reverberates through broader macroeconomic metrics, as consumer spending accounts for more than two‑thirds of U.S. economic activity. A modest dip in the “control group” index—used in GDP calculations—suggests that fourth‑quarter growth could be revised lower than the reported 4.2% annualized pace. The data also underscores a K‑shaped recovery: affluent shoppers continued to spend, while middle‑and lower‑income households curtailed purchases of autos, appliances, and apparel. This divergence poses challenges for monetary policymakers balancing inflation containment with growth support. Looking ahead, the upcoming non‑farm payroll report will test whether labor‑market momentum can offset the retail weakness. A softer jobs number could prompt the Federal Reserve to maintain a cautious stance on rate cuts, keeping borrowing costs elevated for consumers. Retailers, especially those reliant on price‑sensitive segments, may need to adjust inventory and promotional strategies, emphasizing value‑oriented merchandise and online outlet channels that showed modest gains. Monitoring tariff developments and weather patterns will be critical as the sector navigates the post‑holiday landscape.

Disappointing holiday season: December retail sales were flat, falling well short of estimate

By Jeff Cox · Published Tue, Feb 10 2026 8:33 AM EST · Updated Tue, Feb 10 2026 11:05 AM EST

Key Points

• Retail sales were flat in December after a 0.6 % increase in November. Economists surveyed by Dow Jones had expected a 0.4 % rise.

• On an annual basis, sales rose 2.4 %, failing to keep up with inflation, as the consumer price index for December posted a 2.7 % increase.

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Consumer activity slowed sharply for the December holiday shopping season amid a spate of rough weather, tariff impact and persistently higher inflation, the Commerce Department reported Tuesday.

Retail sales were flat on the month following a 0.6 % increase in November, according to numbers adjusted for seasonality but not inflation. Economists surveyed by Dow Jones had expected an increase of 0.4 %. Excluding autos, sales also were unchanged, against the estimate for a 0.3 % increase.

On an annual basis, sales rose 2.4 %, a considerable step down from the 3.3 % pace in November. Sales ex‑autos were up 3.3 % annually in December. A measure known as the “control group” of sales that excludes a number of items and feeds directly into gross domestic product calculations showed a 0.1 % drop for the month.

The report puts a downbeat end to an otherwise solid year for shopping activity, with higher‑end consumers spending briskly through much of 2025, though those on the lower end of the income spectrum were more cautious. The shopping pace failed to keep up with inflation, as the consumer price index for December posted a 2.7 % increase.

For December, multiple categories posted losses while only a few showed notable gains.

• Miscellaneous retailers and furniture stores posted declines of 0.9 %.

• Clothing and accessories stores were off 0.7 %.

• Electronics and appliances saw a drop of 0.4 %.

• Online outlet sales rose just 0.1 %.

• Building materials and garden centers posted the strongest gain, up 1.2 %.

“This is a K‑shaped economy with strong spending from the top and much more cautious spending from middle‑ and lower‑income consumers,” said Heather Long, chief economist at Navy Federal Credit Union. “Retail sales were flat in December, driven by soft spending on autos, home furnishings, appliances and clothing. These items were hard hit by tariffs in 2025 and consumers shifted their spending elsewhere.”

Fourth‑quarter economic activity otherwise was strong, with the Atlanta Federal Reserve’s data tracker pointing to GDP rising at a 4.2 % annualized pace. However, that number could be lowered Tuesday following the retail number. Consumer spending makes up more than two‑thirds of all economic activity in the United States.

The report comes a day ahead of the closely watched non‑farm payrolls count for January. Economists expect that to show an increase of just 55,000, following the 50,000 gain in December. Several prominent Wall Street firms, however, are looking for a lower number, with annual revisions due out that also are expected to shrink previous payroll growth.

In other economic news Tuesday, the employment‑cost index posted a seasonally adjusted 0.7 % increase for the fourth quarter of 2025, according to the Bureau of Labor Statistics, below the 0.8 % forecast. For the year, total compensation costs rose 3.4 %, a bit above the inflation rate. The quarterly rate was the slowest gain since Q3 2020.

The BLS also reported that import prices rose 0.1 % in December, against a forecast decrease of 0.1 %, and were unchanged from a year ago. Export prices increased 0.3 % and were up 3.1 % annually.