Washington

American consumers are increasingly tightening their budgets, relying more heavily on credit cards and prioritising essential purchases as rising costs and global economic uncertainty continue to weigh on household finances, according to the latest Beige Book report released by the US Federal Reserve.

The report, which assesses economic conditions across the country's twelve Federal Reserve districts, found that economic activity continued to expand overall, though at a modest pace. Ten districts reported slight to moderate growth, while one recorded a small decline and another saw little change.

Consumer spending trends, however, painted a mixed picture. The report highlighted growing differences in spending behaviour across income groups as affordability pressures intensified.

Businesses across several districts reported increased use of credit cards by consumers, fewer visits to retail stores and stronger demand for basic necessities, indicating a shift toward more cautious spending habits.

According to the survey, higher-income households have remained comparatively resilient despite rising prices, while middle-income families are becoming increasingly selective about their purchases.

The Federal Reserve noted that many middle-income consumers are stretching their budgets further before making spending decisions, reflecting heightened concern over everyday expenses. Lower-income households, meanwhile, continue to face the greatest financial challenges.

The impact of these affordability concerns has also been felt in the automobile market. Dealers in several regions reported weaker demand for new vehicles as higher prices and fuel costs discouraged purchases.

At the same time, consumers are increasingly turning to used vehicles and hybrid models as more cost-effective alternatives.

Despite softer consumer demand in some sectors, manufacturing activity remained relatively strong. The report showed that manufacturing output expanded in most districts, with nine regions reporting growth ranging from modest to robust levels. Only one district reported a slight decline in factory activity.

The banking sector generally remained stable, although some districts observed a rise in loan delinquencies. Financial institutions reported growing repayment difficulties in areas such as residential mortgages, consumer lending and agricultural credit.

Agriculture continued to face significant headwinds as producers grappled with elevated fuel and fertiliser costs. Conditions in the farm sector were reported as either unchanged or deteriorating across much of the country.

Looking ahead, businesses expressed cautious optimism but remained wary of ongoing economic risks. Expectations for economic growth over the next six months were largely unchanged, with uncertainty surrounding global developments and signs of weaker consumer spending continuing to affect sentiment.

The report suggests that while the US economy is still expanding, many households are becoming more careful with their finances as they navigate higher living costs and economic uncertainty linked to international events, including the ongoing conflict in West Asia.

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Published eight times annually, the Federal Reserve's Beige Book compiles observations from businesses, economists and community contacts across the United States, providing policymakers with an on-the-ground view of economic conditions before monetary policy decisions are made.