Fed Beige Book "U.S. K-shaped consumer polarization deepens" [Fed Watch]

High-income households maintain consumption… middle- and lower-income households 'reduce spending'

Prefer 'hiring freezes and natural attrition' over mass layoffs

Tariff burden persists… cost pressure on manufacturing and retail

The U.S. central bank (Fed) said on the 26th (local time) that the 'K-shaped' gap between groups in the consumer sector has become more pronounced.

According to the Beige Book released by the Fed that day, employment edged down and inflation maintained a moderate upward trend. The Beige Book is an economic report that summarizes regional economic conditions across the United States based on 'on-the-ground' feedback. It is released eight times a year.

In this Beige Book, overall corporate business outlooks showed little change, but some regions expressed concerns that the economy may slow in the future, while some manufacturers showed limited optimism.

The K-shaped consumer polarization cited by the Fed refers to a phenomenon in which economic changes move in opposite directions across income groups. High-income households expand or maintain consumption, while middle- and lower-income households reduce spending.

The term comes from the pattern in which recovery and contraction split upward and downward like the letter 'K'.

This Beige Book confirmed that this K-shaped divergence has recently intensified.

Several regional Federal Reserve Banks, including New York, Atlanta and Minneapolis, reported that high-income household consumption remains resilient. In contrast, discretionary spending by middle- and lower-income households contracted further, and one official said, "Lower-income households are rapidly cutting back on spending."

On the employment side, some regions reported increases in layoff notices, but many firms are adjusting personnel by avoiding direct layoffs and instead using hiring freezes and natural attrition.

In manufacturing and retail, tariff and cost pressures have persisted. Some firms complained of margin compression due to tariffs, but the Fed also reported cases where prices fell due to demand slowdown or tariff adjustments.

Wage increases generally aligned with the Fed's inflation target, but 'moderate' wage pressures were observed in manufacturing, construction and healthcare. A staffing firm in the Philadelphia area said that with a drop in immigration, labor supply has decreased and firms are competing for a limited pool of talent.

The report includes information from the federal government shutdown that ended on November 12. Some retailers reported reduced consumer spending due to the shutdown, and community reports noted increased demand for food assistance due to delays in payments from the Supplemental Nutrition Assistance Program (SNAP).

The lack of official statistics complicates internal Fed debates over whether to cut rates. The market is pricing in about an 80% chance of a 0.25% point rate cut in December.

By city, New York reported continued strong hiring difficulty for AI technical personnel in finance and technology. Philadelphia saw increased use of discounts and points, and restaurants experienced worsening profitability due to heightened competition. San Francisco reported that low-income households cut discretionary spending on dining out, entertainment and beauty, while high-income households maintained solid consumption.

New York=Correspondent Park Shin-young nyusos@hankyung.com