Confidence Down, Sales Up. Here’s How it Makes Sense

The consumer’s under a microscope lately, with job jitters fueling the worry. But if you’re looking for a clearer signal, skip the surveys and focus on the main shopping event: the holidays. There are plenty of real-time surveys and spending trackers, but not many that are both timely and have deep history. One that does? Redbook’s chain retail sales index. It’s not comprehensive — doesn’t cover every store — but it gives a clean picture of where we stand relative to history. And with data through last week, spending is quite strong, both nominally (shown) and in real terms (not shown). If you’re thinking this is a solid setup for stocks, here’s the truth: holiday spending can coexist with a stock rally, but statistically it’s not what drives it.

Along the same lines, if you’re worried strong spending signals a surge in demand that might be inflationary… well, it doesn’t signal that either. The chart below shows basically no relationship between the two. Inflation can average 2% even when same-store sales are in the top quartile — exactly where we are now.

If retail sales don’t tell us much about the equity market or inflation, what do they relate to? Real wages. And that’s where the story gets interesting. The deep contraction in 2022 was bruising for consumers, despite the absence of an official recession.

Inflation hit hard, and unlike the 1970s, there was no wage-price spiral to cushion the blow. Those who stayed employed lost much more purchasing power than seen in prior cycles, and that pain still lingers in sentiment. But here’s the kicker: real wage growth is now positive — and historically, when real wages are positive, consumers spend. Sometimes it really is that simple. So, what does this all boil down to? It looks a lot like durable, non-inflationary growth, backed by wages. That might just be a theme for 2026.

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