US Retail Sales Flatten as PMI Details Reveal Cooling Demand and Renewed Inflation Pressures

A fresh batch of US economic indicators reinforces a growing narrative of moderation across the economy, as consumer spending stalled in October while detailed business surveys for December pointed to slowing demand, softer hiring, and intensifying cost pressures.

Retail sales were virtually unchanged at $732.6 billion in October, signaling a pause in household spending after modest gains in prior months. The flat reading underscored rising caution among consumers facing elevated borrowing costs and persistent price pressures. Although sales remained solid on a year-over-year basis, the lack of monthly momentum suggested that consumption—one of the main engines of US growth—is losing traction heading into year-end.

That softer tone was echoed, and deepened, by the latest flash purchasing managers’ surveys for December. Overall private-sector activity continued to expand, but at a slower pace and below expectations. Manufacturing activity eased to 51.8, undershooting forecasts and marking the weakest pace of expansion in five months, while services activity slowed more sharply to 52.9, its lowest reading in several months. The composite index slipped to 53.0, down from 54.2 previously, highlighting a broad-based deceleration across the economy.

Beneath the headline figures, the PMI details revealed growing stress points. Employment growth softened notably in December, falling to a marginal pace and marking the weakest hiring momentum since early autumn. Manufacturing firms modestly increased payrolls, but hiring in the services sector nearly stalled, reflecting weaker demand, cost pressures, and heightened uncertainty. While labor shortages persisted in some areas, businesses increasingly cited affordability concerns and cautious outlooks as constraints on recruitment.

Business confidence also deteriorated slightly. While firms remained broadly optimistic about the year ahead, sentiment stayed below its long-run average. Companies pointed to higher prices, softer customer spending, and uncertainty around trade and government policy as key drags. These concerns were partially offset by hopes for lower interest rates, fiscal support, and targeted investment in new products, marketing, and capacity expansion.

Perhaps the most striking signal from the PMI report came from prices. Input cost inflation accelerated sharply, reaching its fastest pace in more than three years. Services-sector costs surged at the steepest rate since 2022, driven by rising labor expenses and tariff-related pressures. These higher costs increasingly fed through to selling prices, pushing overall price inflation to one of its strongest levels since the inflation spike of 2022. While manufacturers struggled to pass on costs due to competitive pressures, service providers raised prices more aggressively, adding to concerns about sticky inflation.

Supply-chain dynamics added another layer of complexity. Manufacturing output held up, but new orders declined for the first time in a year, prompting factories to cut input purchases. Inventories of unsold goods continued to rise, albeit at a slower pace, while supplier delivery times lengthened significantly, among the worst delays seen in several years—partly reflecting weaker import supply conditions.

Taken together, the retail sales data and the granular PMI breakdown paint a consistent picture: the US economy is still expanding, but momentum is fading across consumption, business demand, and hiring, even as inflation pressures re-emerge, particularly in services. This combination of cooling growth and stubborn price risks leaves policymakers navigating a narrow path, with decisions likely to remain firmly data-dependent.

Financial markets reacted accordingly. The US dollar weakened further as investors digested the softer growth signals, pushing major currency pairs higher and keeping pressure on the greenback. The currency moves reflected expectations that slowing activity and uneven inflation dynamics could limit the scope for tighter financial conditions going forward.

As the US economy heads into 2026, attention will increasingly focus on whether demand can stabilize without reigniting inflation—or whether the current slowdown deepens. For now, the message from both consumers and businesses is clear: growth continues, but the margin for error is narrowing.