U.S. Retail Sales Held Steady in December 2025: Economic Analysis and Market Implications

The December 2025 retail sales report, released on February 10, 2026, presents a nuanced picture of U.S. consumer health that requires careful interpretation [1]. At face value, retail sales “holding steady” might appear reassuring, but the context reveals meaningful weaknesses beneath the headline stability. The 0.0% month-over-month change represented a sharp deceleration from November’s revised 0.6% increase and fell significantly short of the 0.4% gain economists had projected based on FactSet consensus polls [2].

The retail sales control group, which excludes volatile categories like autos, gas, building materials, and food services and serves as a more reliable gauge of underlying consumer trends, contracted by 0.1% against expectations of a 0.4% increase [1][2]. This divergence between headline stability and control group weakness suggests that the headline figure was propped up by category-specific factors rather than broad-based consumer strength.

Full-year 2025 retail sales growth of 3.7% provides important context but may be somewhat misleading without adjustment for inflation [3]. The distinction between nominal dollar growth and real volume growth is critical: if prices have risen by approximately 3-4% during the year, then the 3.7% annual increase may represent essentially flat unit demand rather than genuine consumption growth.

The December retail data revealed significant variation across categories, providing insights into shifting consumer priorities and spending patterns [1][2]:

• Furniture stores: -0.9%, continuing a pattern of weakness in big-ticket household items
• Miscellaneous retailers: -0.9%, indicating broader discretionary spending pressure
• Car dealers and electronics stores also experienced declines

• Building materials and garden equipment: +1.2%, suggesting continued home improvement investment
• Food and beverage stores: Modest gains reflecting essential spending
• Gasoline stations: Benefiting from energy price dynamics

This pattern suggests consumers are prioritizing essential and investment-type spending (home improvement) while curbing discretionary purchases (furniture, electronics). The furniture sector weakness is particularly noteworthy as it often serves as a proxy for housing market health and consumer confidence in major household commitments.

The market’s reaction to the retail sales data on February 10, 2026, revealed a sophisticated investor response characterized by sector rotation away from consumer-facing stocks [0]. While major indices posted gains—the S&P 500 rising 0.69%, NASDAQ advancing 1.25%, and Russell 2000 gaining 0.81%—the internal composition of these advances showed significant sector divergence.

Consumer sectors experienced notable weakness: Consumer Defensive stocks fell 0.76%, making them the worst-performing sector, while Consumer Cyclical stocks declined 0.27% [0]. This rotation pattern suggests investors interpreted the retail data as confirmation of consumer sector headwinds, prompting a shift toward defensive (Utilities, +2.09%) and growth-oriented (Technology, +1.60%) sectors.

The previous trading session on February 6 had shown even stronger gains across indices—S&P 500 +1.70%, NASDAQ +1.79%, Russell 2000 +2.26%—indicating that the retail data may have tempered initial bullish sentiment as the week progressed [0].

Perhaps the most significant insight from the December retail data is the apparent divergence between dollar-denominated sales growth and actual unit demand. Multiple sources indicate that while 2025 retail sales grew 2-3.7% in dollar terms, unit demand remained essentially flat to negative across most categories [2][4]. This pattern strongly suggests that inflation—rather than increased purchasing volume—is driving nominal sales figures.

This distinction carries profound implications for economic analysis. If consumers are spending more dollars to purchase the same or fewer goods and services, their real purchasing power is eroding despite headline retail sales numbers appearing healthy. The 5% decline in unit demand for discretionary merchandise reported by some sources signals potential stress in consumer confidence that extends well beyond what headline numbers might suggest [4].

The retail data reflects a bifurcated consumer economy that performed markedly differently across income strata [3]. Wealthier consumers, who benefited significantly from 2025’s strong equity market performance and robust capital gains, continued to spend at relatively healthy levels. Meanwhile, middle-income households faced increasingly tight budgets as wage growth failed to keep pace with inflation and employment opportunities became more limited.

This two-tier recovery creates uneven retail performance patterns that can mask underlying economic weaknesses. Categories serving affluent consumers may show resilience while those targeting middle-income buyers struggle—a pattern reflected in the furniture and electronics weakness that disproportionately affects middle-class household spending.

The retail sales data cannot be interpreted in isolation from labor market trends. Reports indicate that hiring has slowed to a “crawl” over the past year, and consumer sentiment has “crumbled” as feelings about the economy deteriorate [2]. This labor market softening creates a feedback loop: fewer job opportunities and slower wage growth constrain consumer spending, which in turn dampens business investment and hiring.

The January jobs report, scheduled for release shortly after the retail data, was expected to provide critical additional clarity on the labor market trajectory [3]. Any acceleration in job losses would represent a significant risk factor for consumer spending and retail sector performance in the months ahead.

The retail sales data reveals potential timing and methodology discrepancies when compared with other consumer spending indicators. The National Retail Federation reported strong holiday season growth of 1.26% month-over-month (excluding autos and gas), creating a notable contrast with the Census Bureau’s flat retail sales figure [5]. These discrepancies may reflect differences in survey methodology, timing of data collection, or category exclusions rather than contradictory conclusions about consumer health.

Such methodological variations underscore the importance of considering multiple data sources when assessing consumer spending trends and avoiding overreliance on any single indicator.

The retail sales data highlights several near-term risks that warrant close monitoring. Consumer sentiment deterioration, if it continues, may translate into weaker-than-expected first quarter 2026 spending as consumers become more cautious about their economic outlook. Discretionary retail sectors face continued pressure from volume declines that are not fully reflected in dollar-based sales figures.

Market volatility may increase as investors process mixed economic signals and reassess expectations for consumer spending growth. The rotation away from consumer stocks observed on February 10 suggests that market participants are already pricing in elevated risk for consumer-facing sectors.

The persistence of unit demand stagnation suggests consumers may be approaching a “spending ceiling” where further dollar increases become difficult to sustain without corresponding income growth [4]. Rising prices eroding volume growth across multiple categories creates a potentially unstable dynamic where retailers face margin pressure from both cost inflation and volume weakness.

Labor market weakening represents perhaps the most significant medium-term risk factor, as job losses or meaningful deceleration in hiring could accelerate consumer retrenchment across multiple spending categories. The concentration of consumer weakness among middle-income households creates additional systemic risk given their outsized contribution to overall consumer spending.

Despite the risks identified, several opportunity windows emerge from the data analysis. The home improvement sector’s resilience (+1.2% in December) suggests continued consumer investment in housing-related categories, potentially benefiting retailers and suppliers in this space. The rotation toward defensive and growth sectors may present opportunities for investors seeking sectors with more favorable supply-demand dynamics.

The solid 3.7% full-year retail growth indicates underlying economic resilience that could provide a foundation for recovery if labor market conditions stabilize [3]. The upcoming January retail sales report in late February will provide important clarity on whether December’s weakness represents a temporary blip or the beginning of a more sustained trend.

The December 2025 retail sales report provides critical insights into U.S. consumer economy dynamics at a potentially significant inflection point. Key findings include:

• Headline Stability with Underlying Weakness:
  Retail sales held flat at 0.0% MoM versus 0.4% expected, while the control group declined 0.1%, suggesting weaker underlying consumer trends than headline figures indicate.

• Nominal vs. Real Growth Divergence:
  Dollar-based sales growth of 3.7% for 2025 appears to be driven primarily by inflation rather than volume expansion, with unit demand showing flat-to-negative trends across discretionary categories.

• Consumer Sector Rotation:
  Markets responded to the data by rotating away from consumer-facing stocks, with Consumer Defensive (-0.76%) and Consumer Cyclical (-0.27%) underperforming while Utilities (+2.09%) and Technology (+1.60%) led gains.

• Category Variations:
  Furniture (-0.9%) and miscellaneous retailers (-0.9%) showed weakness, while building materials (+1.2%) demonstrated resilience in home improvement spending.

• Labor Market Linkages:
  Slowing hiring and deteriorating consumer sentiment create interconnected risks for future spending growth, with the upcoming January jobs report serving as a critical data point.

• Policy Implications:
  Flat retail sales and weakening core demand may support the case against Federal Reserve rate hikes, though stubborn inflation could maintain a hawkish policy stance.

The convergence of these factors suggests that while the U.S. consumer economy demonstrated resilience throughout 2025, meaningful headwinds are emerging that could constrain spending growth in 2026 without meaningful improvement in labor market conditions or consumer sentiment.