December retail sales were flat, falling well short of estimate
The holiday shopping season in December saw a significant slowdown in consumer activity, attributed to various factors such as rough weather, tariff impact, and higher inflation rates, as reported by the Commerce Department. Retail sales remained flat for the month, following a 0.6% increase in November, falling short of economists’ expectations of a 0.4% increase. Excluding auto sales, numbers remained unchanged, contrary to the anticipated 0.3% rise.
On an annual basis, sales saw a modest increase of 2.4%, a decline from the 3.3% growth witnessed in November. Sales excluding auto purchases showed a 3.3% yearly increase in December. The “control group” of sales, which excludes certain items and directly impacts GDP calculations, experienced a 0.1% decline for the month.
Despite a strong year for shopping activity, with higher-end consumers driving spending throughout most of 2025, the pace of shopping failed to keep up with inflation. The consumer price index for December recorded a 2.7% increase. Several categories experienced losses in December, with only a few showing notable gains.
Miscellaneous retailers, furniture stores, clothing and accessories outlets, and electronics and appliances stores all reported declines in sales. Online sales saw a minimal increase of 0.1%, while building materials and garden centers witnessed the strongest growth at 1.2%. Chief economist at Navy Federal Credit Union, Heather Long, highlighted the disparity in spending between different income brackets, labeling it as a “K-shaped economy.”
The fourth-quarter economic activity remained strong, with the Atlanta Federal Reserve tracking GDP growth at an annualized rate of 4.2%. However, this figure may be revised following the disappointing retail sales data. Consumer spending plays a significant role in the U.S. economy, accounting for over two-thirds of all economic activity.
The report precedes the release of the nonfarm payrolls count for January, with economists anticipating a modest increase of 55,000 jobs, following a 50,000 gain in December. Additionally, the employment cost index for the fourth quarter of 2025 showed a 0.7% increase, slightly below the projected 0.8% rise. Import prices rose by 0.1% in December, while export prices increased by 0.3% annually.
