December 2025 Retail Sales Analysis: Flat Holiday Shopping Amid Consumer Confidence Collapse

The December 2025 retail sales report released by the Commerce Department on February 10, 2026, revealed that U.S. consumer spending remained flat during the critical holiday shopping season, coming in at 0.0% month-over-month against consensus expectations of +0.4% [1][2]. This represents a sharp deceleration from November’s revised 0.6% increase and marks one of the weakest holiday season performances in recent years. The report explicitly cited rough winter weather across much of the nation and persistently higher inflation as primary factors constraining consumer activity during the December holiday period [1].

The retail sales figures carry significant weight in economic assessment, as consumer spending accounts for approximately two-thirds of U.S. economic activity [2]. The timing of this release—coming after markets had already experienced early-week weakness—contributed to a nuanced market response that saw major indices oscillating between modest gains and losses on February 10 [0].

Examination of the retail sales breakdown reveals a broadly based decline across most merchandise categories, suggesting that the weakness extended beyond seasonal or weather-related factors [1]. Furniture stores experienced the sharpest decline at -0.9%, followed by miscellaneous stores at -0.9%, indicating softness in home-related discretionary spending. Conversely, home-improvement stores emerged as the sole category posting gains, rising +1.2%, which may reflect continued home maintenance priorities even amid broader consumer caution [1].

The automobile sector showed notable weakness, consistent with elevated interest rates and affordability concerns impacting big-ticket purchases [2]. Home furnishings, appliances, and clothing categories also underperformed expectations, reinforcing the narrative of a consumer pullback in discretionary spending categories. The control group measure—a subset of retail sales that feeds directly into GDP calculations—declined by 0.1% against expectations of +0.4%, signaling underlying demand weakness that extends beyond temporary weather disruptions [2].

The year-over-year perspective adds critical context to the nominal retail sales figures. While December retail sales rose 2.4% compared to the same period in 2024, this nominal growth was substantially outpaced by the Consumer Price Index increase of 2.7% [2]. This divergence indicates that real consumer spending—when adjusted for inflation—actually contracted during the December period. This finding carries profound implications for assessing household purchasing power and the sustainability of consumer-driven economic growth.

The inflation-adjusted contraction suggests that American households faced a challenging environment during the holiday season, where nominal wage gains, if any, failed to keep pace with rising prices across the economy. This real income erosion likely contributed to the measured consumer response of curtailed spending despite the seasonal shopping imperative.

The retail sales data gains significant analytical weight when examined alongside contemporaneous consumer sentiment readings. The Conference Board’s Consumer Confidence Index plummeted to 84.5 in January 2026, representing the lowest level since May 2014 and constituting a 9.7-point drop from the prior month—far exceeding economist expectations of a reading near 91.1 [5]. This collapse in consumer sentiment provides crucial context for understanding the retail sales weakness and suggests that the December data may represent the continuation of a broader trend rather than a one-time aberration.

The University of Michigan’s consumer sentiment index, while showing slight improvement to 57.3 in February 2026, remains at historically depressed levels [6]. The divergence between these two primary consumer sentiment measures underscores the depth of uncertainty facing households and the complex interplay of factors weighing on consumer psychology.

Multiple drivers have contributed to this sentiment deterioration, including concerns about potential tariffs and trade policy uncertainty, political instability, anxieties regarding labor market conditions, and persistent concerns about rising prices for essential goods and healthcare services [5]. These cross-cutting concerns appear to have translated directly into measured consumer behavior during the critical holiday shopping period.

Analysts have identified a pronounced divergence in consumer behavior across income strata, revealing what can be characterized as a K-shaped consumer landscape [2]. Higher-income consumers have demonstrated continued willingness and capacity to engage in marketplace activity, while middle and lower-income households have exhibited markedly increased caution and spending restraint. This bifurcation has significant implications for sector positioning and investment strategy within consumer-related industries.

The disparity suggests that economic benefits continue to flow disproportionately to higher-income households, while those with more limited income face intensifying trade-offs between essential spending and discretionary purchases. This dynamic has material implications for retail categories targeting different consumer segments, with discount and value-oriented retailers potentially positioned to outperform discretionary-focused competitors.

The equity market’s reaction to the retail sales miss on February 10 revealed notable sector rotation patterns that merit analytical attention [0]. Consumer defensive stocks emerged as the worst-performing sector, declining 1.64%, followed by utilities at -0.94% and technology at -0.62%. Conversely, basic materials advanced 1.65%, consumer cyclical stocks gained 1.27%, and real estate rose 0.62%, suggesting a rotation toward more economically sensitive sectors despite the weak consumer data.

The SPDR S&P Retail ETF (XRT) is trading at $88.49, positioned above its 200-day moving average of $82.37, with the ETF demonstrating a 14.22% gain over the 16-month period [0]. Walmart (WMT) has demonstrated particular resilience within the retail sector, with shares rising 59.09% over the same timeframe to $127.09, potentially reflecting investor preference for the company’s value-oriented positioning and market share gains in the current consumer environment [0].

The broader market indices showed a muted overall response to the retail sales miss, with the S&P 500 advancing 0.04%, the NASDAQ declining marginally by 0.02%, the Dow Jones rising 0.49%, and the Russell 2000 advancing 0.40% [0]. The week-to-date performance across indices suggests resilience following early-week weakness, with the Russell 2000 leading at +2.84%, followed by the Dow Jones at +1.90%, the NASDAQ at +1.58%, and the S&P 500 at +1.37% [0].

Several interconnected risk factors emerge from the December retail sales data and associated economic indicators. First, analyst observations suggest consumers may be approaching their spending limits [1], potentially signaling more pronounced deceleration in discretionary spending as households exhaust available capacity to absorb price increases. This dynamic could intensify if real wage growth remains constrained or negative.

Second, the gap between nominal retail sales growth and inflation—with sales rising 2.4% while CPI increased 2.7%—indicates ongoing erosion of real household purchasing power [2]. This real income squeeze could constrain future spending capacity across consumer categories, particularly among middle and lower-income households already exhibiting increased caution.

Third, the deterioration in consumer confidence, particularly the sharp decline in labor market components, suggests potential vulnerability in an economy that remains substantially dependent on consumer spending [5]. The Conference Board’s labor market diffusion index has shown weakening, which could become self-reinforcing if deteriorating job security perceptions lead to preemptive spending cuts.

Fourth, the 0.1% decline in the control group measure—a key input for GDP calculations—indicates underlying demand weakness beyond what can be attributed to temporary weather factors [2]. This finding suggests that the Q4 GDP estimate, currently hovering around 4.2% annualized, may face downward revisions that could alter market expectations for economic growth and Federal Reserve policy.

Despite the elevated risk environment, several factors merit monitoring for potential opportunity identification. The home-improvement sector’s continued strength (+1.2% in December) suggests resilient demand in categories tied to existing home stock and ongoing maintenance priorities [1]. Retailers with strong home-improvement exposure or value-oriented positioning may prove more resilient in the current environment.

The relative outperformance of consumer cyclical stocks on February 10, despite the weak retail data, indicates ongoing investor appetite for economically sensitive exposures [0]. This suggests that market participants may be discounting the consumer weakness as temporary or sufficiently contained to avoid broader economic contagion.

Looking ahead, several data points will provide critical insight into whether the December retail sales represents an aberration or the start of a sustained trend. January retail sales figures will be particularly important in assessing whether the December weakness was predominantly weather-driven or reflects more fundamental consumer caution. The January non-farm payrolls report will illuminate labor market conditions that directly impact consumer spending capacity. Continued monitoring of consumer confidence trajectories, particularly the University of Michigan’s forward-looking sentiment measures, will provide insight into household expectations and spending intentions.

The December 2025 retail sales report presents a complex picture of U.S. consumer health at the conclusion of the holiday shopping season. The flat (0.0%) month-over-month reading missed economist expectations of +0.4% and represented a sharp deceleration from November’s 0.6% gain [1][2]. While rough winter weather contributed to the weakness, the broadly based nature of the decline across categories—including furniture, miscellaneous stores, autos, home furnishings, appliances, and clothing—suggests deeper consumer caution at work [1].

The inflation context adds critical nuance, as year-over-year retail sales growth of 2.4% trailed CPI inflation of 2.7%, indicating real spending contraction when adjusted for price increases [2]. This real income erosion likely constrained household purchasing power during a period when seasonal shopping typically drives elevated consumption.

The consumer confidence dimension amplifies concerns about the trajectory of consumer spending. The Conference Board’s index falling to 84.5—its lowest level since May 2014—reflects deep-seated household concerns about tariffs, political uncertainty, labor markets, and healthcare costs [5]. This 12-year low in sentiment provides crucial context for interpreting the retail sales weakness and suggests potential for continued consumer caution in the near term.

For Q4 GDP assessment, the retail sales data introduces downside risk to current estimates around 4.2% annualized, though the control group’s 0.1% decline may be partially offset by strength in services spending not captured in retail sales figures [2]. The Federal Reserve faces a complex backdrop of cooling consumption potentially supporting accommodative policy alongside persistent inflation that may limit the pace of any rate adjustments.

The K-shaped nature of consumer dynamics—with higher-income households remaining active while middle and lower-income consumers exercise caution—suggests selective exposure within consumer sectors may prove prudent [2]. Value-oriented retailers and discount brands may prove more resilient than discretionary-focused competitors, as reflected in Walmart’s relative stock performance.

Market participants should monitor upcoming data releases for clarity on whether December represents a weather-disrupted aberration or the continuation of a trend. January retail sales, January non-farm payrolls, and continued consumer confidence readings will provide essential inputs for reassessing the consumer outlook and its implications for economic growth and Federal Reserve policy in early 2026.