The U.S. economy could be under strain: wage growth is slowing, and household debt is becoming harder to service, according to data released on Tuesday.
Retail sales in December were almost unchanged – well below analysts’ expectations, who projected a 0.4% increase according to the FactSet survey. By contrast, in November they rose 0.6%.
Also in the fourth quarter, wage growth slowed to its weakest pace in more than four years, and the share of households falling behind on debt repayments rose due to loans and other obligations. The data were released in various reports published on Tuesday.
Taken together, these data suggest that the world’s largest economy ended last year on a footing of fragility due to affordability issues. However, economists expect growth to be supported by larger tax refunds and a steady decline in the Fed’s interest rates over the past year.
“Over the past few years, a lot of damage has been done to households’ finances – through rising inflation, higher cost of living, and higher interest rates. Consumers seemed to be riding high for a while… but the dam is breaking.”
Consumption and Wage Growth Lose Momentum
Retail sales fell in almost all categories recorded by the Department of Commerce: furniture stores and specialty outlets, such as florists, showed the largest declines – both groups cut sales by about 0.9%.
Meanwhile, spending rose only in a few categories, most notably in home goods and improvement stores (up 1.2%).
The measure that separates seasonal swings from underlying demand – the so-called “retail control group” – fell 0.1% in December, very close to the forecast of 0.4% growth. This confirms the high sensitivity of demand to the cost and availability of goods.
The latest data underscore that U.S. consumers are under significant pressure today. Over the past year, hiring cooled, sentiment about the economy deteriorated, and inflation remains elevated.
According to the U.S. Bureau of Labor Statistics, the Employment Cost Index rose by 0.7% in the last three months of 2025 – the slowest rise in years.
Lower- and middle-income households are under even greater financial strain: wealthier families are getting richer and spending more, while lower- and middle-income groups face higher costs and obligations. Economists describe this dynamic as a “K-shaped” or “windy” economy.
Lower- and middle-income households are increasingly turning to credit cards and other loans to maintain their standard of living, while rising debt burdens make all this harder.
According to the latest debt data, delinquencies on auto loans and credit cards are at their highest in about 15 years, according to a report from the New York Fed. Mortgage delinquencies have also risen – the 30-day delinquency has become the largest in about 10 years. All of these problems are more pronounced in low-wage urban neighborhoods, according to researchers at the New York Fed.
Conversely, in higher-income areas the delinquency rate on loans remains below average.
The latest data on overall debt levels do not raise alarms about the health of the consumer sector, but they show that some people have indeed run into serious trouble, which could affect the economy at large, said Justin Begley, an economist at Moody’s Analytics, in an interview with CNN.
“If delinquencies and defaults that injure individuals begin to affect broader groups of Americans, it could negatively impact consumer spending over time. Consumer spending accounts for two-thirds of economic growth.”