Fed Beige Book Shows High-End Spending Defying Consumer Strain

The Fed’s latest survey makes it increasingly difficult to speak of all consumers as though they were experiencing the same economy. The Fed’s August Beige Book, based on information collected through Aug. 24, found that consumer spending grew slightly overall. The national result, however, joined two conditions that sit uneasily together: “heightened price sensitivity” and “solid high-end purchases.” The separation is showing up not only in what consumers buy, but in where they eat, where they stay, whether they postpone large purchases and, for some households in at least some regions surveyed by the central bank, how they’ve financed ordinary expenses. Consumer spending in New York, for example, increased slightly, “buoyed by strength at the high end.” A retailer reported solid luxury sales, while growth in the mid-tier came from higher prices rather than greater sales volume. The pressure also reached purchases that households can defer. New vehicle sales in upstate New York remained weak amid affordability concerns, with some consumers repairing existing cars rather than replacing them. New York banks, meanwhile, reported that delinquencies had edged higher across most loan categories. By way of contrast, Cleveland reported its fourth consecutive period of declining consumer spending, with retailers blaming higher food and fuel prices and economic uncertainty. Merchants expected consumers to continue limiting discretionary purchases. Richmond saw overall consumer spending rise, but the composition was uneven. Smaller brick-and-mortar retailers reported negative to flat demand and slower traffic, while upscale Virginia hotels recorded double-digit revenue growth. Savings provide an important dividing line. Among households that had previously been living paycheck to paycheck without difficulty but subsequently fell into financial difficulty, 66% said they had exhausted their savings or had no savings during the preceding 90 days. Only 26% of households whose financial position deteriorated could cover more than three...