Consumers Hit the Brakes as Retail Sales, Costs Cool
U.S. consumers entered the final stretch of 2025 with less urgency at the checkout counter, adding to signs that economic momentum is cooling without breaking. Fresh data on retail sales, small-business sentiment, and labor costs point to a late-year slowdown in demand—even as underlying income growth and confidence indicators remain intact.
Retail sales were flat at $735.0 billion in December, missing expectations for a 0.4% monthly increase and slowing from November’s 0.6% gain, according to the U.S. Census Bureau. Sales were up 2.4% year over year, but momentum clearly softened into year-end. For full-year 2025, retail sales rose 3.7%, while fourth-quarter sales increased just 3.0% from a year earlier, signaling a moderation in consumer spending during the final three months of the year.
The softness was broad-based. Core retail sales excluding autos were unchanged month over month, while sales excluding both autos and gasoline also flatlined—both undershooting consensus expectations. Retail trade sales overall were essentially unchanged from November and rose 2.1% year over year.
Beneath the headline, performance varied by category. Non-store retailers posted a solid 5.3% year-over-year gain, while food service and drinking places rose 4.7%. Miscellaneous store retailers led with a 9.4% increase, followed by health and personal care stores (+6.4%) and sporting goods and hobby stores (+6.0%). Furniture and home furnishing sales fell 5.6%, while motor vehicle dealers declined 1.3%.
Small-business sentiment softened modestly alongside the retail slowdown. The NFIB Optimism Index dipped 0.2 points to 99.3 in January, its first decline in three months, with taxes and labor quality remaining top concerns. Still, forward-looking indicators improved: a net 16% of owners expect inflation-adjusted sales to rise in the next three months—the highest share in a year—and a net 15% said now is a good time to expand.
Labor cost pressures continued to ease. The Employment Cost Index rose 0.7% in Q4, slightly below expectations and unchanged from Q3. Wages and benefits each increased 0.7% for the quarter, while compensation costs rose 3.4% year over year.