The numbers from the 2025 holiday season were nothing short of remarkable. Americans spent a record $1.29 trillion between Thanksgiving and New Year's Day, with online shopping alone reaching $257.8 billion—a 6.8% jump from the previous year. Nominal retail sales grew 4.1% year-over-year, crossing the historic $1 trillion threshold for the first time.

But behind the celebratory headlines lurks a more sobering reality: real unit volume growth—spending adjusted for price increases—was a more modest 2.2%. And as 2026 begins, economists are warning that the American consumer's legendary resilience may finally be meeting its limits.

The Spending Hangover Thesis

Moody's Ratings projects that real consumer spending growth will decline to approximately 1.5% in 2026, down from stronger levels in recent years. The culprits are familiar: a softening labor market, cooling wage gains, and the cumulative toll of two years of elevated inflation.

"The word of the year, and what sets us up for 2026, should be 'resilient,'" said Liz Everett Krisberg, head of Bank of America Institute. "But resilience doesn't mean invincible. The consumer is feeling down about the economy even as they continue buying."

That paradox—pessimism in sentiment surveys alongside continued spending—has defined the post-pandemic economy. But it may be approaching its natural end. Consumer savings rates have fallen to pre-pandemic levels, credit card balances have hit record highs, and the excess savings accumulated during COVID have largely been depleted.

The Pull-Forward Problem

Retail sector indices have traded sideways in the first weeks of January as institutional investors grapple with a concerning question: how much of the holiday strength was "pull-forward" demand that will cannibalize sales in the first half of 2026?

This phenomenon occurs when consumers accelerate purchases—perhaps anticipating future price increases from tariffs, or responding to aggressive holiday promotions—leaving less demand for the months ahead. The result is a "spending hangover" that can depress first-half results and catch retailers off guard.

"2026 will be a year of consolidation and efficiency rather than unbridled expansion," noted one industry analysis. For retailers that staffed up and built inventory for continued growth, the adjustment could be painful.

The Labor Market Warning Signs

The most concerning data point for consumer bulls may be the labor market. Employment growth slowed to its weakest pace since 2020 in 2025, with the year ranking as the second-worst for job gains since the 2009 global financial crisis.

Perhaps more telling: nearly 90% of net private job creation through November 2025 occurred in a single sector—healthcare and social assistance. That concentration suggests the broader economy's job-creating capacity has diminished significantly, even as headline unemployment remains low.

A Federal Reserve survey released this week found that Americans' job-finding expectations hit record lows, suggesting households are increasingly worried about employment security. When consumers feel less confident about their income prospects, discretionary spending typically follows.

What It Means for Investors

The spending slowdown thesis has clear implications for portfolio positioning:

  • Discount retailers may outperform: Companies like Walmart, Dollar Tree, and Aldi have benefited from "trade-down" behavior as even higher-income consumers seek value. This trend could accelerate.
  • Luxury and discretionary face headwinds: Retailers dependent on aspirational purchases may struggle as consumers prioritize essentials.
  • Experience vs. goods: Travel and entertainment spending has proven more resilient than goods purchases, but even this sector may face pressure if job concerns mount.

"The consumer is resilient, but the consumer is cautious. That distinction will define 2026."

— Bank of America Institute Research

The Counter-Argument

Not everyone is bearish on the consumer. Some economists point to the labor market's continued low unemployment rate, wage growth that still outpaces inflation, and household balance sheets that remain healthier than historical averages.

J.P. Morgan's forecast calls for the S&P 500 to rise 13-15% this year, a projection that implicitly assumes consumer spending holds up. And for every data point suggesting exhaustion, there's another suggesting adaptation—consumers have proven remarkably adept at managing their finances during the post-pandemic era.

The truth likely lies somewhere in the middle: consumer spending will slow but not collapse, forcing companies to work harder for each dollar of revenue. In that environment, operational efficiency and pricing discipline will separate winners from losers.

For investors, the holiday hangover may be just beginning. The coming earnings season will reveal whether retailers planned appropriately—or whether the record-breaking holiday was the last gasp of pandemic-era spending patterns.