The news: The National Retail Federation (NRF) expects US retail sales to rise 4.4% in 2026, which is higher than the average rate of annual growth over the past decade (3.6%) and above the 3.9% increase recorded for 2025.

That’s a bullish outlook given the risks that conflict in the Middle East, tariffs, and a weakening labor market pose to consumers’ financial health.

• Our forecast expects growth to soften to 3.4%, a slight deceleration YoY.
• Bain & Company forecast a 3.5% increase in retail sales this year, the slowest rate of growth since 2019.

Zoom out: The NRF acknowledged that the war in Iran and its ripple effects are increasing uncertainty, but contended that “the underlying fundamentals of the US economy will support continued stability in the year ahead,” chief economist Mark Mathews wrote in the news release.

• The NRF expects the K-shaped economy—where robust spending from wealthier consumers masks weakening outlays from lower- and middle-income households—to remain in force this year.
• It is also counting on larger tax refunds to spur spending in the year’s first half.

However, the conditions that the NRF cites as tailwinds to consumer spending—solid income growth, healthy balance sheets, and labor market stability—are by no means assured, especially as war in the Middle East continues.

Rising gas prices are reducing consumers’ buying power. More money spent at the pump means less available for other essentials, and even less for discretionary categories—especially for lower-income households, which spend a higher proportion of their budgets on energy costs. A heftier energy bill is also detrimental to consumer confidence, although sentiment has become a less reliable predictor of spending behavior over the past few years.

Households are already rethinking how they spend. Two-thirds (65%) of consumers say they have already changed their shopping habits over concerns about the conflict and the ensuing economic fallout, while another 18% say they are planning to adjust their behavior, according to a March Omnisend survey.

• 45% have reduced nonessential spending, 36% are searching for discounts or other promotions, 35% are comparing prices more often, and 28% are trading down to cheaper brands.
• Discretionary services appear most at risk, with 42% of consumers saying they would reduce restaurant spending, followed by 18% for travel and 9% for entertainment and fashion.

Implications for retailers: The range of sales forecasts underscores the difficulty of predicting consumer behavior in the current environment, when there are both real threats to spending (gas prices, inflation) and opportunities (higher-income consumers’ resilience).

Growing in this bifurcated environment will require a consumer-centric approach. On the one hand, retailers need to offer strong value: Lower prices, exclusive loyalty perks, and omnichannel convenience can help companies stay relevant with cost-conscious shoppers. For companies that rely on discretionary spending, the key will be to find ways to get people excited to shop—whether through a high-touch, entertaining store experience, quality customer service, or a steady flow of new, on-trend products.