Retail Sales Outlook: Why Shoppers Keep Spending | NRF Chief Economist Mark Matthews
Mark Matthews, Chief Economist for the National Retail Federation, discusses strong retail sales growth at 5.3% (exceeding the forecasted 4.4%), driven primarily by real growth rather than inflation. Despite consumer anxiety about gas prices, inflation, and geopolitical concerns, spending remains robust—particularly among high-income households—due to factors like tax refunds and consumers' prioritization of spending on family and gifts.
Summary
In this interview, Mark Matthews, Chief Economist and Executive Director of the National Retail Federation, provides insights into the current state of retail sales and consumer behavior. Matthews reveals that retail sales are growing at 5.3% year-to-date, significantly exceeding the NRF's initial forecast of 4.4%—a robust figure when compared to the historical average of 3.6-3.7%. He clarifies that most of this growth is real growth rather than inflation-driven, noting that commodity inflation is only around 0.8%. He emphasizes that goods inflation has historically been minimal, with durable goods actually experiencing deflation over the past 30 years, while most inflation in the economy occurs in services.
Matthews characterizes the current consumer as exhibiting "griping but swiping" behavior—spending money while expressing anxiety about economic conditions. Consumers are trading down and seeking value, which benefits discount retailers and dollar stores. However, he identifies a "bifurcated consumer" with a K-shaped spending pattern where the top 20% of households by income drive a disproportionate share of spending (approximately 60% of total spending). Notably, even lower-income households are spending more this year compared to last year, a change attributed to the Working Families Tax Cut Act, which pumped $60 billion more into the economy through tax refunds. However, Matthews notes this source of funding had largely offset higher gas prices by August and is no longer a significant driver.
Regarding consumer confidence, Matthews indicates it remains weak, with the University of Michigan consumer sentiment index near historic lows, though some indices like the Conference Board show less negative readings. He attributes some of this pessimism to media coverage, citing a Brookings Institute study showing media narratives are five times more negative than in the previous 30-year period. Despite this sentiment, consumer spending continues to be strong, particularly on holidays, gifts for family, and special occasions.
On e-commerce, Matthews argues that the distinction between digital and physical retail is becoming obsolete, describing the current retail landscape as "blended commerce." He notes that younger shoppers, contrary to expectations, still value physical store experiences for the social and experiential aspects of shopping. He also discusses the growing relevance of artificial intelligence in retail, noting that while significant investments are being made in AI-assisted shopping experiences, consumer adoption remains in single digits (estimated between 2-20%). However, AI's impact on search and discovery is becoming critical—retailers must ensure they appear in AI search results and maintain transaction visibility.
Matthews concludes with a more cautious outlook for forward retail growth, identifying headwinds such as depleted tax refund stimulus and sustained high gas prices. However, he emphasizes that consumers prioritize spending on family and loved ones, often cutting back elsewhere to maintain holiday and gift spending. He recommends that retailers focus on multiple sales channels, engage with influencers and social media platforms where consumers seek inspiration, and recognize that the path to purchase has become increasingly diverse and complex.
About this episode
Retail sales are running 5.3% ahead of last year, beating NRF's 4.4% forecast. Michael Bull, CCIM asks NRF Chief Economist Mark Mathews why shoppers keep spending. Consumer sentiment sits near the lowest readings on record, yet shoppers keep buying. Mark Mathews, Chief Economist and Executive Director of Research at the National Retail Federation, explains why most of the 2026 growth is real rather than inflation: goods inflation is running about 0.8%, and a dollar spent on a durable good 30 years ago costs about 79 cents today. Mark breaks down the K-shaped consumer (the top 20% of households drive about 60% of spending), how $60 billion in extra tax refunds offset higher gas prices through August, and why retailers who win on price are winning now. He also covers diesel and tariff costs, blended e-commerce and physical stores, AI shopping assistants, TikTok and influencer-driven sales, and his outlook for holiday spending. For owners and investors in retail real estate and net lease retail, this is a clear read on the consumer behind the rent checks. In this episode:00:00 Retail Real Estate: Are Retailers Really Doing Well?01:41 Retail Sales Up 5.3% vs. NRF's 4.4% Forecast03:44 Who's Winning: Retailers That Own Low Prices04:55 Dollar Stores and the K-Shaped Consumer06:03 Gas Prices, the Top 20% and $60B in Tax Refunds08:30 Consumer Confidence Near Record Lows10:07 Diesel, Tariffs and Who Absorbs the Cost11:30 E-Commerce, Blended Commerce and Physical Stores13:07 Why Shoppers Still Want to Touch the Product13:51 AI in Retail: Big Investment, Unclear Payoff15:51 Showing Up in AI Search Results18:11 Retail Sales Outlook and Holiday Spending19:28 Advice for Retailers and Retail Property Owners21:14 TikTok, Influencers and the Customer as Emperor22:24 Wrap-Up Connect with Mark Mathews:https://www.linkedin.com/in/mark-mathews-cbe-4522913/National Retail Federation Website: https://nrf.com Connect with Michael Bull & The Show:Michael Bull, CCIMBull Realty, Inchttps://www.linkedin.com/in/michaelbull/ For more commercial real estate market data, sector forecasts, and video episodes, visit CREshow.com. America's Commercial Real Estate Show is brought to you by our proud sponsors. TCN Worldwide: Commercial real estate property management, leasing, and sales solutions across the US and globally. Learn more: https://www.tcnworldwide.com Build Out: The ultimate product suite for commercial real estate brokerage firms looking to streamline their business. Learn more: https://www.buildout.com Bull Realty: Regional commercial real estate brokerage services headquartered in Atlanta, delivering market intel and strategies. Learn more: https://www.bullrealty.com Commercial Agent Success Strategies: Twenty-one cloud accessed commercial broker training videos with slide deck action notes. Learn more at https://www.commercialagentsuccess.com/ #RetailRealEstate #RetailSales #CommercialRealEstate #CRE #NRF #ConsumerSpending #NetLease #RetailForecast #Economy #AIinRetail #BullRealty #CREShow
Key Insights
- Retail sales growth of 5.3% is primarily driven by real growth rather than inflation, with commodity inflation at only 0.8%, contradicting the narrative that inflation is fueling retail sector growth.
- The top 20% of households by income account for approximately 60% of total consumer spending, creating a K-shaped spending pattern where higher-income consumers are the primary drivers of retail growth while lower-income households face greater pressure.
- The Working Families Tax Cut Act provided $60 billion in additional tax refunds that supported lower-income consumer spending, but this stimulus effect had largely dissipated by August and is no longer a significant contributor to ongoing spending growth.
- The distinction between digital and physical retail transactions has become impossible to meaningfully measure and operationally irrelevant, as retailers and consumers increasingly blur these categories through omnichannel strategies like buy-online-pick-up-in-store.
- Retailers must now compete for visibility in AI search results and manage transactions across multiple discovery channels—including social media, influencers, and AI assistants—rather than relying primarily on traditional search or in-store traffic, fundamentally changing how purchasing paths work.
Topics
Transcript
Welcome to America's commercial real estate show your source for market Intel forecasts and strategies I'm Michael Bull thank you for being with us today I show today's brought to you by TCNWorldwide.com. Check it out if you need acquisitions, dispositions, property management, site selection, any kind of commercial brokerage anywhere in the world or the U.S., check out TCN Worldwide. And if you're looking for services in Atlanta or the Southeast, we're the TCN Worldwide broker there. So check us out. All right, let's get to the show. One of the things that has been really interesting to us as our shop here is we do all kinds of commercial brokerage and have folks in every asset class, every…
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