Richest Drive Economy: Beige Book Reveals Spending Divide

The Federal Reserve's Beige Book indicates a growing chasm in consumer spending patterns. Wealthier households are actively purchasing luxury items and engaging in travel and experiential activities. Conversely, lower and middle-income consumers are demonstrating heightened price sensitivity, scaling back on nonessential goods and services. This economic divergence is evident across various sectors, with mid-to-lower-end retail reporting slumping sales while luxury goods continue to perform well.

Smaller retailers are experiencing sharp declines in business activity, with furniture stores, which cater to middle and lower-income consumers, reporting significant struggles. Restaurants are observing wealthier patrons dining out frequently, while lower-income customers are reducing frequency or becoming more price-conscious. This trend mirrors economic analyses from the past year, which suggested that spending for the majority of households has only kept pace with inflation, while higher-income groups have seen substantial gains.

Additionally, businesses are signaling a shift in how they absorb tariffs. Having depleted pre-tariff stockpiles, many firms now intend to pass increased costs onto consumers. Manufacturers report rising raw material expenses and plan selective price increases. Despite potential inflationary pressures, some businesses are also finding ways to negotiate prices down and turn to domestic vendors, aligning with nationalistic trade agendas.