Economic activity picks up – but so do prices, as higher income buyers indulge, but lower income purchasers ‘price sensitive’

Economic activity picked up over the last month – but so did prices, according to the latest gauge of the economy published Wednesday by the Federal Reserve.

In its latest Beige Book, the Fed noted that overall economic activity rose at a slight to modest pace in eight of its 12 Reserve Bank districts. “This marks an improvement over the last three report cycles where a majority of Districts reported little change,” the report stated. “Most banks reported slight to modest growth in consumer spending this cycle, largely attributed to the holiday shopping season.”

However, the report stated that, among several districts, “spending was stronger among higher-income consumers with increased spending on luxury goods, travel, tourism, and experiential activities.

“Meanwhile, low to moderate income consumers were seen to be increasingly price sensitive and hesitant to spend on nonessential goods and services,” the report stated.

Despite the reported increase in economic activity, the report notes that prices grew at a moderate rate “across a large majority of Districts.”

“Cost pressures due to tariffs were a consistent theme across all Districts,” the report stated.

“Several contacts that initially absorbed tariff-related costs were beginning to pass them on to customers as pre-tariff inventories became depleted or as pressures to preserve margins grew more acute,” the report stated.

In other areas, the report noted:

• Banking conditions were generally reported as stable or improving, with some increased demand coming from credit cards, home equity loans, and commercial lending.
• Auto sales were little changed to down across most districts.
• Residential real estate sales, construction, and lending activity softened in most districts that report on the sector.
• Outlooks for future activity were mildly optimistic with most expecting slight to modest growth in coming months.

The Beige Book is a semi-monthly report (published eight times a year) that provides anecdotal information on current economic conditions from each Federal Reserve Bank district through reports from bank and branch directors and interviews with key business contacts, economists, market experts, and other sources.

Beige Book – January 2026