December Retail Sales - Dwindling Momentum Exiting Holiday Season

A delayed report showed retail sales unexpectedly stalled in December after a 0.6% monthly gain in November.  In nominal terms retail spending was up 2.4% year-over-year but flat compared to November.  Adjusting for inflation, spending declined 0.3% year-over-year and month-over-month.  The figures suggest consumer spending lost momentum toward the end of the holiday season with households frustrated by a higher cost of living and concerns over the health of the labor market.  At our year-end seminars, we discussed the concept of a K-shaped economy where some parts of the economy are doing well and other parts of the economy are not doing so well (trending higher and lower in the shape of a K).  Today’s data is indicative of the stress being applied to lower-income earners who get their confidence and willingness to spend from a healthy labor market and gainful employment.  Higher income earners who represent a smaller percentage of the population but account for the lion’s share of spending are more influenced by the health of financial markets and portfolio wealth.  While today’s report was delayed, January numbers – scheduled for release on Tuesday (2/17) – should offer more current insights into consumer health heading into 2026.

• Real (inflation adjusted) retail sales declined 0.3% year-over-year.  In December, retail sales grew 2.4% nominally netting a real decline of 0.3% after adjusting for 2.7% inflation. Higher spending increases at brick-and-mortar retailers (+9.4%), online retailers (+5.3%) and restaurant dining (+4.7%) was partially offset by slower spending on building materials (+0.5%) and deceleration in spending on motor vehicles (-1.1%).  Six of thirteen categories advanced in real terms.

• Real (inflation adjusted) retail sales declined 0.3% month-over-month.  In December, nominal retail sales levels were flat compared to November netting a real decline of 0.3% after adjusting for 0.3% month over month inflation.  Accelerated spending on building materials (+1.2%) was offset by deceleration at brick-and-mortar retailers (-0.9%).  Two of thirteen categories advanced in real terms.