Core Data at a Glance

  • U.S. retail sales rose 0.6% in November from the previous month, following a slight decline in the prior month. Despite high prices and a weakening labor market dampening consumer confidence for most of last year, spending showed a rebound.
  • Sales increased in 10 of 13 categories, including clothing, building materials, gasoline, and motor vehicles. Data from the U.S. Census Bureau on Wednesday showed that spending at restaurants and bars—the only services category in the data—rose 0.6% from the previous month.
  • Consumers have gradually adapted to tariff-induced price shocks and may accelerate purchases in the coming months. Atlanta Fed President Raphael Bostic predicted on Wednesday: "The shock has faded, and they will start buying again." However, he also noted the risk that stronger consumer spending could push inflation higher.

Deeper Insights

The University of Michigan's preliminary consumer survey showed the consumer sentiment index rose this month to its highest level since last September, but it remains nearly 25% lower than in January 2025. Survey director Joanne Hsu said in a statement that households "are still mainly focused on kitchen-table issues such as high prices and a softening labor market."

Data from the New York Fed showed consumers' expectations of finding a job fell to a record low last month. The average probability of finding a new job in the event of unemployment dropped 4.2 percentage points to 43.1%.

The U.S. Bureau of Labor Statistics reported last Friday that nonfarm payrolls increased by only 50,000 in December, below expectations; the unemployment rate edged down to 4.4% from 4.5% in November, but it remains higher than the 4% level in January 2025.

Philadelphia Fed President Anna Paulson noted on Wednesday that the economy created only about 600,000 jobs last year, far below the 2 million in 2024. She said both labor supply and demand have declined: "The sharp drop in immigration has slowed labor supply growth. On the demand side, businesses—both nationally and locally in Philadelphia—are telling us that uncertainty is holding back hiring, and they are considering factors such as trade policy and how artificial intelligence might change labor needs."

Recent surveys show that spending among affluent consumers remains strong, but many lower-income households have cut back. Minneapolis Fed President Neel Kashkari said on Wednesday: "A lot of surveys show that Americans are feeling economic strain, especially middle-class and lower-income groups." He added: "When I talk to businesses with large retail operations, they say middle-class and lower-income customers are behaving as they do during recessions—pinching pennies, trading down, and hunting for discounts."

Kashkari believes the main factor restraining lower-income consumer spending may be inflation, rather than weak hiring or a softening labor market, underscoring the importance of policymakers not losing sight of the 2% inflation target. He said in response to a question: "We are in a tricky spot in monetary policy. We really do need to get inflation all the way back to 2% so the economy can return to a more normal environment and people can feel good about their purchasing power and the economic outlook."