Global Consumer and Manufacturing Resilience: A Tailwind for Equity Markets?

The global economy in Q3 2025 has shown a mixed but generally resilient performance, with retail sales and manufacturing activity offering conflicting signals. Investors are now grappling with a critical question: Can the recent gains in equity markets, driven by strong consumer demand and manufacturing PMI data, be sustained, or are these trends masking deeper vulnerabilities? To answer this, we must dissect the interplay between retail resilience, manufacturing dynamics, and equity market fundamentals.

Retail Resilience: A Mixed Picture of Growth and Adaptation

Global retail sales in 2025 are projected to reach $31.3 trillion, reflecting a 3.73% year-over-year increase, according to Q3 2025 retail trends (Q3 2025 retail trends). The U.S., a key driver of this growth, saw retail sales climb to $7.45 trillion in 2025, up 2.56% from 2024, according to that analysis. While in-store sales still dominate (81.6% of U.S. retail revenue in 2024), e-commerce is accelerating, with online revenue expected to surge to $8.91 trillion by 2030, the same Q3 2025 analysis projects. This shift underscores a structural adaptation by retailers to economic pressures, including lean inventory strategies-inventory levels are now 10% to 50% below pre-pandemic benchmarks, the report notes.

Retail real estate fundamentals also show signs of stabilization. In Q3 2025, U.S. retail properties experienced positive net absorption (1.8 million square feet) for the first time in the year, driven by renewed demand, as shown in CBRE retail figures (CBRE retail figures). Average asking rents rose 0.4% quarter-over-quarter to $24.92 per square foot, reflecting a focus on tenant retention in those CBRE figures. These trends suggest that while the sector faces headwinds, it is not collapsing-rather, it is recalibrating to a post-pandemic reality.

Manufacturing PMI Divergence: Optimism vs. Caution

The U.S. manufacturing sector presents a more ambiguous picture. The S&P Global U.S. Manufacturing PMI rose to 53.0 in August 2025, signaling expansion and the fastest production growth in over three years, according to Trading Economics (Trading Economics). This improvement was fueled by rising new orders and hiring, albeit against a backdrop of persistent input cost inflation driven by tariffs, as Trading Economics also notes. However, the Deloitte Outlook warns of a contraction in Q3 2025, citing weaker demand, excess inventory, and a 2.7% projected rise in input costs over the next 12 months (Deloitte Outlook).

This divergence highlights a critical tension: while some indicators point to recovery, others suggest fragility. For instance, the S&P PMI's optimism contrasts with Deloitte's caution about manufacturers' ability to absorb rising costs. Deloitte's report emphasizes digital and data investments as a lifeline for the sector, underscoring the need for structural adaptation, not just short-term gains.

Equity Market Implications: A Tale of Two Sectors

The October 2025 equity market performance, marked by record highs for the S&P 500 and Nasdaq Composite, was driven by a combination of factors: a well-anticipated Federal Reserve rate cut, strong corporate earnings in the tech and AI sectors, and a broader appetite for risk, according to the Schroders quarterly review (Schroders quarterly review). However, the sustainability of these gains hinges on reconciling the conflicting signals from retail and manufacturing data.

On one hand, robust consumer spending and retail real estate stabilization provide a solid foundation for equity valuations. On the other, manufacturing's cost pressures and inventory challenges could weigh on corporate margins, particularly in capital-intensive industries. The key question is whether the equity market's optimism is justified by structural trends (e.g., e-commerce growth, AI-driven productivity) or if it is overestimating the durability of current conditions.

For example, the performance of companies like Walmart and Amazon-whose 2024 sales totaled $681 billion and $273.66 billion, respectively, according to that Q3 2025 retail trends analysis-demonstrates the power of consumer resilience. Yet, manufacturers facing input cost inflation may struggle to pass these costs to consumers without triggering demand erosion. This duality suggests that equity market gains are not uniformly sustainable; they depend heavily on sector-specific fundamentals.

Policy Uncertainties and the Road Ahead

The sustainability of recent market gains also depends on external factors. The looming U.S. and global elections could reshape trade policies and tariffs, directly impacting manufacturing costs, a risk highlighted in the Deloitte Outlook. Additionally, geopolitical tensions and labor market dynamics remain wild cards. While lower interest rates may temporarily buoy demand, they cannot offset long-term structural issues like supply chain fragility or demographic shifts.

Conclusion: A Conditional Tailwind

The interplay between retail resilience and manufacturing fragility creates a conditional tailwind for equity markets. Consumer-driven sectors, particularly those leveraging digital transformation and e-commerce, are well-positioned to sustain gains. However, manufacturing-dependent equities face headwinds unless cost pressures abate or productivity improvements offset inflation. Investors must remain vigilant, balancing optimism about near-term growth with caution about sector-specific vulnerabilities.

In this environment, diversification and a focus on innovation-rather than short-term cost-cutting-will be critical for long-term sustainability. The equity market's ability to navigate these challenges will ultimately determine whether the current tailwind proves enduring or ephemeral.