What: Rising inflation, sluggish job growth, and policy uncertainty are undermining US retail performance and consumer sentiment.

Why it is important: These pressures are forcing retailers to adapt strategies as economic uncertainty and affordability challenges reshape consumer behaviour.

The latest official data reveals a concerning slowdown in US retail sales growth, with September’s modest 0.2 percent rise falling short of expectations and signaling a sharp deceleration after months of stronger performance. This trend is compounded by a significant drop in consumer confidence, which has reached its second-lowest level since the pandemic, reflecting widespread anxiety about inflation, employment prospects, and housing affordability. The cumulative impact of rising prices in essential categories such as groceries, healthcare, and housing is eroding household purchasing power, particularly among lower-income Americans, even as wealthier consumers benefit from a buoyant stock market. Wage growth has slowed, the labour market has cooled, and unemployment has climbed to a four-year high, all of which are weighing heavily on consumer sentiment and spending. Meanwhile, ongoing policy debates around tariffs and interest rates, as well as disruptions from government shutdowns, have added further uncertainty, complicating both economic forecasting and retail planning.

IADS Notes: Recent industry reports confirm that persistent inflation, weak job growth, and new tariffs are converging to dampen consumer confidence and spending. While upper-income shoppers have helped sustain retail sales growth into September 2025, the broader sector faces mounting risks from eroding consumer trust and a sharp drop in confidence, particularly among lower-income households. Analysts highlight how inflation and policy shifts are accelerating changes in consumer behavior, forcing retailers to rethink pricing, inventory, and supply chain strategies. The erosion of consumer trust is leading to fundamental changes in shopping patterns and brand relationships, with retailers prioritising operational resilience and value-focused strategies to navigate this volatile landscape.

Grim retail sales data fuels concerns about health of US economy