While economic activity expanded in most Federal Reserve districts, the survey indicated that consumers are responding to the economy in fundamentally different ways depending on their financial circumstances. The report’s description of consumer spending as “increasingly bifurcated across income groups amid affordability pressures” may be the clearest acknowledgment yet from the Fed that the headline consumer story masks a widening divide beneath the surface.
That conclusion was similar to findings from PYMNTS Intelligence’s latest Consumer Expectations Index, which found that financial resilience increasingly determines consumer behavior, often more than income itself.
The Beige Book painted a picture of an economy still moving forward. Economic activity increased at a slight to moderate pace in 10 of the 12 Federal Reserve districts. Employment was largely unchanged. Wage growth remained modest. Banking conditions generally remained stable.
Yet consumer spending emerged as a persistent source of concern.
Fed contacts reported stronger demand for necessities, fewer retail visits and increased credit card usage. Auto dealers cited softer demand for new vehicles and greater interest in used and hybrid vehicles as affordability concerns intensified. Several districts pointed to rising financial strain among low-income consumers and increasing caution among middle-income households.
The language used by the Fed was revealing. High-income households were described as remaining resilient and less sensitive to price increases. Middle-income consumers, meanwhile, were described as “squeezing more life out of every dollar before deciding to spend it.”
District-level observations reinforced that pattern.
New York retailers reported that luxury goods continued to sell well while lower-tier merchants experienced softer demand. A department store contact attributed strong performance largely to affluent shoppers, particularly in accessories and watches. At the same time, auto dealers reported weakening demand for new vehicles and increased substitution toward used cars.
Kansas City contacts reported growing caution among middle-income households. Cleveland retailers described consumers as becoming “extremely price sensitive,” while one retailer pointed to rising credit card usage as evidence of growing household pressure. Philadelphia contacts reported that consumers were consolidating shopping trips as fuel costs rose.
PYMNTS Data Explains Why
The Beige Book largely described what businesses are seeing. PYMNTS Intelligence helps explain why they are seeing it. Financial lifestyle has become a stronger differentiator than income alone.
The gap between financially secure and financially strained households is nearly twice as large as the gap separating the highest- and lowest-income consumers. Two households may report similar earnings, but vastly different financial outcomes depending on debt burdens, fixed expenses, savings levels and their ability to absorb unexpected costs.
That distinction helps explain many of the trends appearing throughout the Beige Book.
Consumers continue spending, but increasingly on essentials. They continue shopping, but less frequently. They continue borrowing, but more often to bridge everyday expenses. Businesses continue raising prices, but many report encountering greater resistance from customers.
The result is an economy where consumer demand has not disappeared but has become more uneven.
The Beige Book suggested the consumer remains the economy’s foundation. PYMNTS Intelligence data suggested that the foundation is becoming increasingly uneven, with one group continuing to spend through rising costs while another finds itself with progressively less room to maneuver.
