The Federal Reserve’s latest Beige Book, released on November 26, 2025, highlights a significant decline in consumer spending as the year comes to a close. This final report for 2025 indicates a cautious sentiment among businesses and consumers, revealing a softening demand and increasing price sensitivity, especially among lower- and middle-income households.
The Beige Book, which compiles insights from various business contacts and economic observers across the United States, suggests that while the economy is still growing, it is doing so with diminishing momentum as 2026 approaches. This eighth edition reflects a marked shift from earlier reports, which presented a more optimistic view of economic activity.
Consumer Spending Trends Show Weakness
Among the findings, consumer spending has emerged as the weakest segment of the economy. The report noted a pronounced decline in discretionary expenditures, particularly among low- and middle-income households that are becoming increasingly cautious due to rising prices. Respondents reported reductions in general merchandise purchases, a decline in restaurant patronage, and weaker leisure travel. There was also a notable decrease in big-ticket item sales and a dip in electric vehicle purchases attributed to the expiration of federal tax credits.
Even households with higher incomes are exhibiting caution, choosing to delay purchases or opt for lower-priced alternatives. Several respondents linked this shift in spending behavior to disruptions in SNAP benefits and financial strain from the recent government shutdown. The report emphasized that this trend is not confined to specific regions but rather reflects a comprehensive change in consumer behavior across the country.
Financial Conditions and Business Outlook
The Beige Book also addressed lending conditions, which mirrored the overall sentiment of restraint. Although some areas reported stable or slightly improving credit conditions, caution prevailed. Many financial institutions noted a decline in consumer lending and tighter credit standards, leading to increased hesitation among borrowers. Small businesses, in particular, are grappling with higher costs, slower sales, and a reduced ability to secure reliable funding, raising concerns about potential defaults.
As the new year approaches, businesses are entering 2026 with limited confidence. The outlook indicates expectations of slower activity in the early months, influenced by ongoing cost pressures and uncertainty regarding policy and consumer behavior. Many firms are adopting conservative hiring practices, focusing solely on replacement hires or implementing selective freezes as they navigate the challenging economic environment.
While some sectors, such as data centers and certain manufacturing segments, continue to experience robust demand, these areas are not sufficient to uplift overall confidence. Many businesses are postponing capital expenditures and expansion plans, waiting for clearer signals on tariffs and interest rate policies.
The final Beige Book for 2025 paints a picture of an economy in transition. Growth remains intact, yet households and businesses are adapting to increasingly restrictive conditions. As 2026 unfolds, the critical question will be whether renewed stability can restore economic momentum or if rising caution will dominate the early months of the new year.
