Kiplinger Retail Outlook: Spending Takes a Breather

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Retail sales were flat in December after a pretty good October and November. Both online and in-store sales were flat. Building-supply stores saw a strong sales rise for the second month in a row, but furniture and miscellaneous stores saw a dip. Other sectors were flat, including motor vehicles and restaurants.

Spending on services excluding dining rose a healthy 0.4% in November (the latest month for which data are available). December data will be released on February 20.

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Holiday sales rose 3.6% from a year ago, with in-store sales up 2.7%. That was nearly the same as last year’s gain, though it represents less growth in real spending because some of 2025’s sales gain was simply due to higher prices.

Consumer spending in January was likely weak, as well, given the late January snow and ice storms that blanketed much of the eastern U.S. Going forward, spending may soften a little in the face of a few headwinds. Consumer sentiment measures are in the dumps, again, though they don’t seem to be correlated very strongly with spending. But wage growth is expected to slow some. The hiring slowdown in the labor market is creating job anxiety, even among people who are 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. Also, 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 buying imported goods as this happens.

There will be two tailwinds, however: Stock market capital gains distributions were strong at the end of the year, so there could be a spending bump among wealthier households. Motor vehicle purchases may get a boost, for example. Second, tax refunds in February, March and April should be larger than normal, especially in the Northeast and Pacific Coast states, given the higher cap on state and local tax deductions on federal returns, plus other tax cuts. Estimates are that an extra $1,000 per household, or $100 billion total, may end up in consumers’ pockets, boosting GDP growth by up to half a percentage point.

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.