The US retail sales report for November 2025, released on November 25, showed a month-over-month decline of -0.10%, falling short of the 0.30% consensus forecast and reversing the prior month’s robust 0.60% increase. This data, sourced from the Sigmanomics database, highlights a notable cooling in consumer spending, a key driver of US GDP growth. The contraction follows a volatile year marked by a sharp dip in February (-0.80%) and a recovery phase through mid-year, with monthly gains averaging around 0.40% over the past 12 months.

Drivers this month

• Autos and parts sales fell by 0.30%, reflecting higher financing costs and inventory adjustments.
• Electronics and appliances declined 0.20%, signaling cautious consumer behavior on durable goods.
• Food and beverage stores remained stable, supporting essentials consumption.

Policy pulse

The -0.10% reading contrasts with the Federal Reserve’s inflation target of 2%, suggesting easing demand-side inflation pressures. This aligns with the Fed’s recent rate hikes aimed at cooling the economy, indicating monetary policy is beginning to weigh on consumer activity.

Market lens

Immediate reaction: The US dollar index (DXY) strengthened by 0.15% in the hour following the release, while 2-year Treasury yields dipped slightly by 3 basis points, reflecting a modest shift toward a more dovish Fed outlook.

Retail sales are a critical macroeconomic indicator, closely linked to consumer confidence, employment, and income trends. November’s -0.10% MoM decline contrasts with the 12-month average growth of approximately 0.35%, underscoring a slowdown in consumption momentum. Year-over-year comparisons show retail sales up roughly 3.20%, indicating that while growth persists, it is decelerating.

Monetary Policy & Financial Conditions

The Federal Reserve’s ongoing tightening cycle, with the federal funds rate now at 5.25%, has increased borrowing costs. Higher interest rates have dampened consumer credit growth, particularly for big-ticket items. Financial conditions, as measured by the Bloomberg US Financial Conditions Index, have tightened by 15% since mid-2025, constraining discretionary spending.

Fiscal Policy & Government Budget

Fiscal policy remains neutral to mildly supportive. The recent extension of child tax credits and infrastructure spending has bolstered disposable incomes, but government budget constraints limit further stimulus. The US deficit narrowed slightly in Q3 2025, reducing fiscal space for additional consumer support.

External Shocks & Geopolitical Risks

Global supply chain disruptions have eased but remain a risk, especially with ongoing tensions in Eastern Europe and trade frictions with China. Energy price volatility has moderated, but geopolitical uncertainty continues to weigh on business and consumer sentiment.

Seasonal adjustments and volatility in categories like autos and electronics contributed to the decline. The chart below (not shown) illustrates the monthly retail sales trajectory, with a clear peak in Q3 2025 followed by a softening in Q4.

Market lens

Immediate reaction: US equity futures dipped 0.30% post-release, reflecting investor concern over slowing consumer demand. The S&P 500 (SPX) showed increased volatility, while the US dollar (USDJPY) gained modestly, indicating safe-haven flows.

Looking ahead, retail sales face a complex outlook shaped by monetary policy, labor market dynamics, and external risks. The Federal Reserve’s tightening is expected to continue, albeit at a slower pace, which may further restrain consumer credit and spending.

Bullish scenario (20% probability)

• Strong labor market supports wage growth and consumer confidence.
• Supply chain normalization boosts product availability and prices stabilize.
• Retail sales rebound to 0.40% MoM by Q1 2026, sustaining GDP growth above 2%.

Base scenario (55% probability)

• Moderate consumption growth around 0.10-0.20% MoM as inflation eases but borrowing costs remain elevated.
• Fed pauses rate hikes mid-2026, balancing growth and inflation risks.
• Retail sales remain flat or mildly positive, supporting steady but unspectacular economic expansion.

Bearish scenario (25% probability)

• Further tightening of financial conditions triggers sharper consumer pullback.
• Geopolitical shocks disrupt supply chains and energy prices spike.
• Retail sales decline by 0.30% or more MoM, risking recessionary pressures in 2026.

November’s retail sales contraction is a cautionary signal amid a challenging macroeconomic backdrop. While not definitive of a downturn, it highlights the fragility of consumer demand under tighter monetary policy and geopolitical uncertainty. Policymakers and market participants will closely monitor upcoming data for signs of sustained weakness or resilience.

Structural trends such as digital commerce growth and demographic shifts continue to support long-run consumption, but near-term volatility remains elevated. Balancing inflation control with growth preservation will be the key challenge for the Federal Reserve and fiscal authorities in 2026.

Since 2020, US Retail Sales MoM and the S&P 500 (SPX) have shown a positive correlation of approximately 0.65. Periods of strong retail sales growth, such as mid-2021 and late 2023, coincided with equity rallies. Conversely, retail sales dips often preceded market corrections, underscoring the indicator’s value as a leading economic signal.