The news: Retail sales rose 3.7% in 2025, according to the US Commerce Department. That was slightly ahead of our expectations for 3.5% growth, underscoring consumers’ resilience in the face of tariffs and uncertainty.

However, weaker-than-expected retail sales figures for December could indicate growing financial strain on households, which could weigh on spending in 2026.

• Sales were flat compared with November, well short of the 0.4% MoM increase economists expected.
• On a YoY basis, sales rose 2.4%—below both the 3.3% annualized pace in November and the 2.7% rate of inflation in December.

The big picture: The mixed retail sales data reflects a K-shaped consumer landscape, with most growth coming from affluent households, who are more confident about their financial health due to solid wage gains and the wealth effect, while lower- and middle-income consumers struggle as the cost of living rises.

That trend was especially evident during the holiday season, with nearly all growth coming from high-income consumers, according to a PwC analysis of Numerator data.

• Households with incomes over $125,000 increased their spending by 29% YoY from November 1 to December 17.
• Middle-income households ($40,000 to $125,000) and low-income households ($20,000 to $40,000) curbed spending by 4.2% and 4.1%, respectively, causing their collective share of total holiday sales to drop by nearly 7 percentage points.

Other signs of cracks in consumers’ financial health emerged, as both buy now, pay later (BNPL) use and consumer credit surged at the end of the year, indicating that shoppers are turning to more flexible payment options to fund their purchases.

• BNPL usage hit a record $20 billion during the holiday season, up 9.8% YoY, per Adobe.
• Outstanding credit card and other revolving debt increased $13.8 billion in December, the biggest monthly jump in over two years, according to the Federal Reserve.