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U.S. consumer spending cooled at the start of 2026, extending a slowdown that began late last year and raising fresh questions about the strength of the recovery. The latest Commerce Department data show a modest pullback in retail activity, a development that matters today because it affects growth, inflation and hiring decisions across the economy.
Snapshot: small decline, mixed signals
Retail sales fell 0.2% in January, a weaker outcome than economists had expected after December’s flat reading. The report, released Friday, arrived later than usual because of a prolonged government shutdown that delayed federal data releases.
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When purchases at auto dealers and gas stations are removed — a common adjustment analysts use to gauge underlying consumer behavior — sales actually rose 0.3%, suggesting some resilience beneath headline weakness.
- Headline retail sales (January): -0.2%
- Retail sales excluding autos and gas: +0.3%
- Online sales (January): +1.9%
- Control group (excludes autos, gas, building materials, restaurants): +0.3%
- Notable sector moves: health/personal care -3.0%; clothing -1.7%; restaurants -0.2%
- Gasoline national average (AAA, early March): $3.32 per gallon (about $0.34 higher than a week earlier)
What dragged sales down
Motor-vehicle dealerships were a key source of weakness, with declines in auto-related spending subtracting from the overall number. Gas station receipts also fell in January, reflecting lower pump prices that month — though prices have rebounded in recent days amid rising geopolitical tensions in the Middle East.
Severe winter storms across large parts of the country likely played a role as well, keeping shoppers home and shifting some demand online. Ecommerce merchants posted a clear gain for the month while many brick-and-mortar categories struggled.
Some home-focused segments stood out positively: sales of home furnishings and building materials — including landscaping and gardening supplies — showed gains, underlining continuing pockets of demand tied to housing and home projects.
Broader implications
The Commerce Department’s retail snapshot does not capture most services — travel, hotels and many professional services sit outside this measure — but the available services gauge did register a dip: restaurant receipts fell 0.2% in January.
Economists use the control group metric to estimate consumer spending that feeds directly into GDP calculations. That measure’s 0.3% increase in January suggests underlying consumption is not collapsing, but higher prices can mask weaker real demand.
Tim Quinlan, an economist at Wells Fargo, cautioned that headline figures obscure important dynamics. He argued January was stronger than the top-line number implies, but expected February to look softer because of continued winter weather. Quinlan also flagged the jump in pump prices as a looming risk: higher gasoline costs raise nominal retail totals while eroding real, inflation-adjusted consumption.
Tax refunds arriving later in the spring could support a spending uptick in March, he added, but much depends on how energy prices evolve amid geopolitical strains.
Retailers and the labor market
Corporate results released during the quarter have been uneven. Walmart reported a broadly positive quarter as lower prices and fast fulfillment attracted a range of shoppers, while Target posted declines in sales and profits as it worked through merchandising missteps. Home Depot topped expectations but noted persistent caution among consumers in a soft housing market.
Retailers also face uncertainty from shifting trade policy. The recent court decision removed one set of high-profile tariffs, but administration moves to replace them have left import costs and sourcing plans in flux — a factor that complicates inventory ordering and hiring decisions.
That caution shows up in the jobs data. In February, U.S. employers cut 92,000 positions, an unexpected drop that pushed the unemployment rate to 4.4% and contrasted with economists’ forecasts for modest payroll gains.
For consumers and policymakers alike, the near-term picture is mixed: underlying demand appears intact in places, but weather, energy prices, trade policy and labor-market shifts all add uncertainty. How those forces play out over the next few months will determine whether the early-2026 slowdown proves temporary or signals a more lasting soft patch in consumer-driven growth.
