Consumers Enter 2026 With More Reasons to Spend Cautiously

Core Insights - Consumer spending growth has shown signs of slowing down, with recent data indicating that retail sales were flat in December, falling short of expectations after several months of robust growth [2][9] - The labor market is weakening, with fewer jobs being added and layoffs increasing, which could significantly impact consumer spending in 2026 [5][10] - The wealth effect, driven by higher stock prices and increasing housing wealth, has supported consumer spending, but a potential slowdown in the stock market may lead to reduced spending [6][7] Economic Impact - Consumer spending constitutes about two-thirds of the U.S. economy, meaning even slight slowdowns can have a substantial effect on overall economic activity [3][4] - The recent flat retail sales data suggests that the holiday shopping season was less favorable for some retailers, which could have implications for corporate profits and stock prices [8][9] - Economists have noted that a combination of slower real disposable personal income growth, a softening labor market, and declining saving rates may be diminishing consumers' willingness and ability to spend [10]