Beige Book: K-Shaped Consumption

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The edition of the Beige Book that was released today by the Federal Reserve was sprinkled with more optimistic notes than the previous release. Eight of the twelve Federal Reserve District banks districts reported modest improvement in economic activity and most generally indicated a greater level of optimism on the part of regional businesses. Three reported flat economic activity (Chicago, Minneapolis, and Dallas) and  one noted a modest decline (New York). However, most of the Districts also indicated that affordability is becoming a problematic issue, with low-to-moderate consumers pulling back on their spending while high income consumers continue to spend freely. Several noted that high-end tourism spending continued to be strong at year-end, but that mid-tier attractions and hospitality businesses were experiencing weaker demand. Additionally, some regional banks reported an increase in mortgage and auto loan delinquencies among their lower tier borrowers. Several respondents noted that cost of living pressures, particularly from health care and energy, were beginning to squeeze these mid and lower tier consumers. The next Beige Book is scheduled for release March 4.

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