The current status: What a difference a year makes. Last year we noted that, by most measures, the economy looked strong—consumer spending was trending up, inflation was trending down, and the labor market was solid. While consumer spending largely held up throughout the year, much of the growth came from higher-income households, and 2025 was defined by rising uncertainty as inflation climbed and the labor market softened.

Several factors could determine where retail heads in 2026.

What will happen with tariffs?

While the Trump administration’s trade policies reshaped the retail sector this year, there’s a good chance those duties could look very different in 2026.

• Several conservative justices on the US Supreme Court signaled skepticism in early November that President Donald Trump has the emergency authority to impose many of his administration’s tariffs, including the so-called “Liberation Day” duties and levies on Canada, Mexico, and China.
• However, even if the Court rules against the administration, a return to pre-tariff “normal” is unlikely. The administration has suggested it may turn to other authorities, such as Section 232 of the Trade Expansion Act of 1962, to impose tariffs on national-security grounds.

If the administration loses at the Court but then deploys tariffs using other authorities, it still seems likely that its trade policies would push consumer prices higher, even with those tools’ stricter limits.

Will the labor market improve?

While the unemployment rate remains low by historical standards, the labor market weakened in the second half of the year. A surge of high-profile layoffs is sweeping through corporate America—Amazon cutting 14,000 roles, Nestlé eliminating 16,000 jobs, Target trimming 1,800 positions, and Starbucks cutting 900 corporate positions on top of 1,100 earlier in the year, while also closing hundreds of locations.

This decline in labor-market conditions has weighed on consumer confidence, making households increasingly reluctant to spend.

Will the cost-of-living crisis recede?

Roughly a quarter of US households are living paycheck to paycheck, per Bank of America data, as the share of lower-income households—especially millennials and Gen Xers—continues to grow.

Financial pressure is weighing on consumers, with inflation rising throughout much of 2025 at a time when wage growth for middle- and lower-income households hasn’t kept pace. That imbalance is creating a cost-of-living squeeze that’s pushing lower- and middle-income consumers to pull back, trade down, and seek retailers and restaurants that deliver convincing value.

Will agentic commerce unlock growth?

There’s no shortage of buzz around AI in retail, particularly after OpenAI announced its Instant Checkout feature, which lets users buy products without leaving ChatGPT—potentially opening a new retail channel that could reshape online shopping behaviors.

• Many are bullish about the technology’s potential. A recent McKinsey report, for example, suggests US B2C retail could see up to $1 trillion in orchestrated revenues from agentic commerce by 2030. But there’s good reason to believe it may not live up to those expectations.
• History offers a cautionary tale: social commerce. Facebook spent years touting its potential but struggled to find a model that worked. Although social commerce eventually took hold, it will account for just 6.6% of total US ecommerce sales this year—a small slice of ecommerce, which is itself a small slice of overall retail.

Agentic commerce may face a similar uphill climb unless it can win over a far broader consumer base by genuinely making everyday shopping easier.