US retail sales flatline, fueling rate-cut bets
December data misses forecasts as consumer spending weakens, prompting dollar slide and expectations of Federal Reserve easing
US retail sales unexpectedly stalled in December, missing economist forecasts and heightening expectations for Federal Reserve interest rate cuts as consumer spending shows signs of fatigue.
The Commerce Department reported Tuesday that retail sales were unchanged from November, falling short of the 0.4% gain projected by economists surveyed by Bloomberg. The disappointing figure follows a 0.6% increase in November, marking an abrupt slowdown in consumer activity that accounts for roughly 70% of US economic growth.
US stock futures slipped in early trading, with the Dow Jones, S&P 500, and Nasdaq 100 all pointing to a lower open. The dollar index declined as investors recalibrated monetary policy expectations, with money markets increasing the probability of three Fed rate cuts throughout 2026.
The weak retail data closes out a challenging year for American consumers. Recent reports indicate the US experienced the sharpest decline in consumer spending in four years during late January, driven by what economists have termed "tariff shocks" combined with wage volatility and a softening labor market.
"Tariff fatigue and wage volatility are chilling 2026 growth," according to a recent economic analysis, as consumers shift toward value-oriented purchases and cut back on discretionary spending. Persistently high living costs and concerns about job security have further dampened consumer sentiment.
Some analysts noted pockets of resilience beneath the headline number. Core retail sales, which exclude volatile categories like automobiles, gasoline, building materials, and food services, rose 0.7% for the month—a stronger-than-expected increase that suggests underlying demand remains intact in certain segments.
The data arrives as markets navigate a delicate balance between cooling inflation and slowing growth. The Federal Reserve held rates steady in January after implementing reductions late in 2025, and policymakers will likely scrutinize incoming data closely to determine the timing and pace of additional easing.
Traders are now looking ahead to key economic reports scheduled for later this week, including Non-Farm Payrolls and Consumer Price Index data, which could provide more clarity on the labor market's trajectory and inflation pressures. These reports carry particular weight as they may influence the central bank's interest rate decisions in coming months.
Tuesday's retail sales release was originally scheduled for earlier in the month but was rescheduled to February 10, giving investors a later-than-usual read on holiday shopping performance. The lackluster conclusion to 2025 retail activity underscores growing challenges for American households facing elevated prices and economic uncertainty.