Kiplinger Retail Outlook: Economizing but Still Spending

last updated 25 November 2025

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Retail sales excluding autos, gas and restaurants were flat in September, according to just-released government data (a release date for October data has not been determined yet). It was not surprising that growth paused in September after being strong the entire summer. E-commerce sales dipped a bit following a strong August. In-store sales grew a moderate 0.2%. Motor vehicle sales decreased a modest amount.

Restaurant and fast-food sales grew strongly for the second consecutive month. Spending on eating out is an important signal as to whether consumers feel flush or constrained, so the upward trend in this category shows consumers are not tapped out yet. Spending on services excluding dining rose 0.5% in August, the strongest growth this year. (August is the latest month for which services spending data other than dining are available.)

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Holiday sales should grow around 3.6% from a year ago, nearly the same growth as last year, though this will represent less growth in real spending because inflation has been higher this year. There is evidence that consumers are economizing, particularly moderate- and lower-income households. In credit card data, the average value of purchases of services has declined, even though transactions have increased. That means that consumers are trading down, such as going to fast-food places instead of full-service restaurants.

Consumer spending growth is likely to be weaker going into next year, because there are too many headwinds. Consumer sentiment measures appear to be softening, again. First, the hiring slowdown in the labor market is creating job anxiety, even among those who are already employed. Households tend to cut spending and add to savings when the possibility of losing a job looms. If the unemployment rate or initial claims for unemployment rise, that fear will intensify. Second, price increases caused by tariffs are starting to show up among home furnishings and other imported goods in the Consumer Price Index. Price increases could become more prevalent as inventories of goods that were stockpiled ahead of the tariffs start to run down, and merchants begin passing on the cost of tariffs on goods they have imported recently. Consumers should pull back on purchases of imported goods as this happens.

There will be one tailwind, though: Stock market capital-gain distributions are likely to be strong at the end of the year, so there could be a spending bump among wealthier households when this happens. Motor vehicle purchases may get a boost, for example.

David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.