Briefing at a Glance

  • Retail sales were unexpectedly flat in December, data from the U.S. Census Bureau showed Tuesday, confirming the results of several recent surveys that consumers began the new year in a subdued mood.
  • After a 0.6% increase in November, store sales were nearly unchanged, with furniture stores, clothing stores, and eight other retail categories reporting declines, the Census Bureau said.
  • "The weak headline number for December, along with downward revisions to prior months, provides a clearer signal that consumers are beginning to feel fatigued," said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. Spending growth in the second half of 2025 looked unsustainable because "real income growth has slowed to near stagnation recently, partly due to a softening labor market."

In-Depth Analysis

Signs of weak retail spending and gloomy sentiment among U.S. households contrast with the optimistic signals conveyed by stock market resilience and forecasts that economic growth will remain solid in the coming quarters.

The Atlanta Federal Reserve estimated Tuesday that the economy may have expanded at a 3.7% annualized rate in the fourth quarter.

Looking ahead, Federal Reserve officials project in their median forecast that gross domestic product will grow 2.3% this year, following 1.7% growth in 2025.

Policymakers cut their key interest rate three times in the final months of 2025 in an attempt to support the labor market, even though inflation remains above their 2% target.

"The good news is that the outlook is clearing up," Cleveland Fed President Beth Hammack said Tuesday.

"Recent economic growth data have been encouraging, and the labor market appears to have stabilized," she said in a speech. "Many forecasts, including my own, see inflation moderating this year."

Dallas Fed President Lorie Logan also expressed an optimistic outlook on the economy, inflation, and the job market.

"Economic activity has rebounded strongly since the first half of last year, supported by consumer spending and business investment, which should support the labor market," she said Tuesday.

"Real GDP growth in the third quarter was estimated at a strong 4.4%," she said in her speech. "Tracking estimates show strong GDP growth in the fourth quarter, even accounting for the temporary drag from the government shutdown."

Many consumers are not as optimistic as Federal Reserve officials.

Consumer confidence fell last month to its lowest level in more than a decade, dragged down by sluggish hiring and high prices, according to the Conference Board.

The Conference Board said its index based on a household confidence survey fell to 84.5 this month from 94.2 in December, with consumers expressing concerns about high tariffs and a bleak job market.

Indeed, job openings declined last month, and over the course of 2025, openings fell by 966,000 to 6.5 million, the lowest level since September 2020, the U.S. Bureau of Labor Statistics said Thursday.

As the stock market bull run extended into 2026, optimism among high-net-worth households this month offset pessimism among middle-income consumers, the University of Michigan said Friday when reporting its survey results.

The results of the New York Fed's household debt report released Tuesday are consistent with the so-called "K-shaped" income trend since the pandemic: affluent consumers are thriving, while most other households struggle to maintain their standard of living.

The loan delinquency rate in the fourth quarter, including mortgages and credit card debt, rose to 4.8% of all outstanding household debt—the highest level since 2019, according to data released by the New York Fed on Tuesday.

"As household debt levels grow moderately, mortgage delinquency rates continue to rise," Wilbert van der Klaauw, economic research advisor at the New York Fed, said in a statement.

"Mortgage delinquency rates are near historical norms, but the deterioration is concentrated in low-income areas and areas where home prices have fallen," he said.