American consumers closed out 2025 with a paradox that should concern both retailers and policymakers: while dollar sales remained flat, unit demand fell across virtually every product category. The data, released Friday by market research firm Circana, signals that consumers are reaching their limits—spending the same amount but getting less for their money.

The findings paint a more nuanced picture of consumer health than headline retail sales figures suggest, revealing price sensitivity and potential spending fatigue as households enter 2026.

The December Numbers

Circana's analysis of the five-week period ending January 3, 2026, revealed several concerning trends:

  • Total retail sales: Flat year-over-year in dollar terms across food, consumer packaged goods, and discretionary products
  • Unit demand: Down 1% overall, with deeper declines in some categories
  • Non-edible CPG: Dollar sales up 1%, but unit sales down 3%
  • Discretionary merchandise: Dollar sales down 2%, unit demand down 5%
  • Food and beverage: Dollar sales up 2%, unit sales flat

The divergence between dollar sales and unit volumes tells a clear story: prices have risen faster than consumers are willing—or able—to increase their spending.

What's Driving the Squeeze

Several factors are contributing to the consumer spending plateau:

Persistent inflation: While the Federal Reserve's preferred inflation measure has declined from its 2022 peaks, prices remain elevated across most categories. The cumulative effect of several years of above-normal inflation has significantly increased the cost of everyday goods.

Tariff pass-through: The Fed's Beige Book this month noted that companies that initially absorbed tariff-related costs are now passing them to customers. This adds another layer of price pressure for consumers.

Income growth lag: Wage growth has been positive but hasn't fully kept pace with cumulative price increases, squeezing real purchasing power for many households.

"Consumers are telling us through their behavior that they have limits. They're maintaining spending levels but accepting less product for their money—that's not sustainable indefinitely."

— Retail analyst at Circana

The K-Shaped Consumer

The data reinforces the "K-shaped" consumer economy that has characterized the post-pandemic period:

Higher-income households: Continue spending relatively freely, supported by robust stock portfolios and home equity gains. This group accounts for a disproportionate share of total spending.

Middle and lower-income households: Facing greater strain from elevated prices, depleted pandemic savings, and mounting credit card debt. These consumers are trading down to cheaper alternatives and cutting back on discretionary purchases.

Holiday shopping data showed this divide clearly: thrift shops and off-price retailers saw traffic surge 11.7% and 6.6% respectively, while full-price retailers struggled.

Credit Card Concerns

The spending plateau coincides with concerning trends in consumer credit:

  • Credit card balances: Have reached record highs nationally, with revolving debt exceeding $1.1 trillion
  • Interest rates: Average credit card APR remains above 20%, meaning accumulated balances carry punishing carrying costs
  • Delinquencies: While still manageable, credit card and auto loan delinquencies have crept higher throughout 2025

These credit dynamics suggest some consumers have been using borrowing to maintain spending levels—a strategy with clear limits.

Consumer Sentiment Disconnect

Perhaps the starkest illustration of consumer stress comes from sentiment surveys. The University of Michigan's consumer sentiment index, released last week, showed:

January reading: 54, up slightly from December's 52.9 but still near historic lows

Historical context: The reading remains below levels seen during the Great Recession, despite relatively low unemployment

Key concerns: Americans cite high prices and softening labor markets as primary anxieties

The disconnect between relatively solid economic data and deeply pessimistic consumer sentiment reflects the lived experience of price pressures that don't show up in GDP figures.

Implications for Retailers

The spending plateau creates a challenging environment for retailers:

Volume pressure: With unit sales declining, retailers face the choice of maintaining prices (and accepting lower volumes) or cutting prices (and squeezing margins).

Promotional intensity: Expect more aggressive discounting and promotional activity as retailers compete for a smaller pool of consumer spending.

Private label growth: Store brands and private label products typically gain share during periods of consumer price sensitivity.

Investment Takeaways

For investors, the consumer spending data suggests several positioning considerations:

Defensive positioning: Consumer staples companies with strong value propositions may outperform discretionary retailers facing volume pressure.

Discount retailers: Off-price chains like TJX Companies and Ross Stores could continue to benefit from trade-down behavior.

Credit quality watch: Consumer finance companies may face headwinds if credit deterioration accelerates.

Looking Ahead

The key question for 2026 is whether the spending plateau deepens into actual contraction or stabilizes as inflation continues to moderate. Much depends on:

Inflation trajectory: Further progress toward the Fed's 2% target could ease pressure on household budgets.

Labor market: Continued employment growth would support consumer spending; a meaningful rise in unemployment would accelerate the pullback.

Policy actions: Trump administration proposals like credit card rate caps, if implemented, could provide relief to stressed consumers.

For now, the message from December's data is clear: American consumers are stretched, and the era of pandemic-fueled spending growth has definitively ended.