The Commerce Department reported Tuesday that consumer activity slowed sharply ahead of the December holiday season due to continued severe weather, the impact of tariffs and persistently high inflation.
Retail sales were flat last month, following a 0.6% increase in November, according to figures that are adjusted for seasonality rather than inflation. Economists polled by Dow Jones had expected a rise of 0.4%. Sales excluding automobiles were also flat compared to the expected 0.3% increase.
On an annual basis, sales rose 2.4%, down sharply from November’s 3.3% pace. Sales excluding automobiles rose at an annual rate of 3.3% in December.
The report says that while wealthy consumers will continue to spend aggressively through much of 2025, lower-income consumers will remain more cautious, marking a dark end to an otherwise robust year of shopping activity.
The pace of shopping did not keep pace with inflation, as the consumer price index rose 2.7% in December.
In December, multiple categories posted losses, while only a few showed significant gains.
Sales at other retail and furniture stores decreased by 0.9%, at clothing and decorative goods stores by 0.7%, and at electrical and home appliance stores by 0.4%. Sales at online outlets increased by just 0.1%, while building supplies and garden stores had the biggest increase at 1.2%.
“This is a K-shaped economy with strong spending at the top and more prudent spending by middle- and lower-income consumers,” said Heather Long, chief economist at Navy Federal Credit Union. “Retail sales were flat in December due to weaker spending on automobiles, home furnishings, electronics, and clothing. These items will be hit hard by tariffs in 2025, as consumers shift their spending elsewhere.”
Economic activity was otherwise strong in the fourth quarter, with gross domestic product increasing at an annual rate of 4.2%, according to data tracked by the Atlanta Federal Reserve. However, this number may be lowered following Tuesday’s retail numbers. Consumer spending accounts for more than two-thirds of all economic activity in the United States
The report was released ahead of the much-watched release of non-farm payrolls for January. Economists expect the number to increase by just 55,000, after December’s 50,000 increase. But several prominent Wall Street firms said they were pushing for a lower number, with annual revisions expected and historical payroll growth expected to slow.
In other economic news Tuesday, the Bureau of Labor Statistics said the employment cost index rose a seasonally adjusted 0.7% in the fourth quarter of 2025, below expectations of 0.8%. Total coverage costs for the year increased by 3.4%, slightly above the rate of inflation. On a quarterly basis, this was the lowest growth since the third quarter of 2020.
The BLS also reported that import prices rose 0.1% in December, flat year over year, contrary to expectations for a 0.1% decline. Export prices rose by 0.3%, an annual increase of 3.1%.
