For five straight months, prices in the United States have been climbing faster than wages, a trend that would normally push consumers to tighten their belts. Yet they keep spending anyway. In August, U.S. consumer spending grew at its fastest pace in more than a year, and government data released this week showed increases in categories including autos, clothing, and dining out.

To keep up their spending, households across the income spectrum are finding workarounds: tapping home equity, visiting food banks for free groceries, or using ChatGPT to trim grocery bills. Tom Barkin, president of the Federal Reserve Bank of Richmond, has noticed the same phenomenon. He sees the trend in corporate earnings reports and hears echoes of it when talking with businesses and residents across his district, which stretches from Maryland down to South Carolina.

"Things are getting a little tight, prices are rising, wages aren't keeping up, but people still want to maintain their lifestyle," Barkin said in an interview. "I'm just impressed by the resourcefulness of consumers." In the northern suburbs of Atlanta, 61-year-old Elizabeth Gentile and her husband don't necessarily have to cut back, but they have always lived within their means. With the national average gasoline price above $4 a gallon, the couple has adopted a trick at their local Kroger gas station that some call "two-car fueling." They park their two vehicles on either side of a Kroger pump, and when one car is finished, they hand the nozzle to the other person to continue filling the second car so the whole process still counts as a single transaction, allowing them to enjoy a discount of up to $1 per gallon.

Gentile said: "If another car pulls up while we're fueling, we always politely explain what we're doing. We'll laugh and say we're sharing a $1-per-gallon fuel discount. So far, everyone has understood."

U.S. inflation has now been at levels that Barkin and other Fed officials, as well as many ordinary Americans, consider too high for six consecutive years. Since early 2020, grocery prices in the U.S. have risen 32%, and the average price of a pound of ground beef now stands at a record $7.16. The post-pandemic boom, tariffs, and now the war with Iran have delivered successive price shocks that have placed heavy strain on households. Wages have also fallen behind price gains; Bureau of Labor Statistics data show that since March, wage growth has trailed price increases. In Washington, an employee prepares ground beef for customers. The situation has left consumers frustrated, and consumer sentiment remains near the historic low reached earlier this year.

Still, a recent analysis of quarterly corporate earnings by Bloomberg Economics and Bloomberg Intelligence found that, despite these pressures, consumers' circumstances have improved somewhat. Large retailers including Walmart say some shoppers are shifting to cheaper goods, hunting for discounts, and buying private-label products priced below branded items. But the chief executive of Darden Restaurants Inc. said last month that its casual dining chains, including Olive Garden, still have plenty of repeat customers.

Resourcefulness

To keep money flowing, what Richmond Fed's Barkin calls resourcefulness is showing up in many different forms. One is "buy now, pay later" services. These have rapidly gained popularity, especially among younger people. According to research by the Richmond Fed, the service has been growing at an annual rate of about 20% since 2021. Kenny Marbry, a teacher from the Duluth suburb of Atlanta, has put AI tools to work. He uploads grocery receipts to ChatGPT to determine whether Kroger or Sam's Club is cheaper, or takes photos of entire store shelves and lets the AI assess which products offer the best value. Marbry, 38, estimates that with the help of the chatbot assistant and the spending discipline he has developed through comparison shopping, he saves about $100 a month.

Marbry said: "Now when I see a price, I'm likely to ask myself, 'Do I really need to buy this? Can I get it cheaper somewhere else? Or can I make it myself?' These small decisions add up to a big impact, especially when you're supporting a family of five and trying to make every dollar go further." For others, visiting food banks has become routine, freeing up money for other expenses. Brian Greene, who heads the Houston Food Bank, the largest food bank in the United States, said: "Housing assistance and rent assistance are hard to get. Food assistance is much easier."

Aaron Schulenburg, executive director of the Society of Collision Repair Specialists, said many auto body shops are now discussing how cash-strapped consumers would rather live with small dents and scrapes on their cars than get them repaired. He said this is at least partly because insurance costs have risen sharply, and a $2,000 deductible is no longer rare. Schulenburg said: "They're facing financial trade-offs now. When people were under less financial pressure, deciding to get the car fixed was much easier."

Faced with staggering new-car prices that now average $50,000, Americans are increasingly choosing longer-term auto loans to lower their monthly payments. Data from auto services company Cox Automotive show that in August, 31.3% of auto loans had terms longer than six years, a record high and up 5.8 percentage points from a year earlier. A customer looks at a new car at a dealership in Thousand Oaks, California. "It's a reminder that people are always thinking about the monthly payment," said Erin Keating, executive analyst at Cox. "It's quite striking. They think, 'What can I do to bring the monthly payment down to a level I can afford?'"

Investments and home equity

Wealthier consumers are drawing on assets that have appreciated sharply since the pandemic. A report from the JPMorgan Chase Institute shows that since 2019, the share of people making net withdrawals from investment accounts has doubled. Researchers found that although older and wealthier people led the way, withdrawals are increasing across all age groups and income brackets, suggesting that "more young people are also using investment wealth to spend." Homeowners who have seen property values soar in recent years are borrowing against their home equity to cover major expenses. According to Federal Reserve data, home equity-backed loans in the second quarter rose 9.4% from a year earlier, reaching the highest level since 2017. Jefferies equity analysts said that historically, a substantial share of home equity loans has been used for home projects. Now that 30-year mortgage rates have topped 7%, homeowners who previously locked in very low rates are likely to keep investing heavily in their homes.

At the same time, lower-income households are being forced to take on debt. A recent survey commissioned by the Texas organization "No Kid Hungry" found that in Texas, the second-most populous state in the U.S., 39% of parents have gone into debt to pay for groceries. The strength of loan demand this year surprised Jessica Grostic, president and chief executive officer of Copper Basin Federal Credit Union. The credit union serves four counties in the Blue Ridge Mountain region of Tennessee and Georgia. In May and June, the credit union set records for loan business, and September, typically a slow month, had already exceeded expectations as of the 25th. Grostic said more people are starting to use a loan program that automatically offers up to $2,000 based on a customer's direct deposit record.

Grostic said: "People sometimes urgently need cash to pay bills, and that's scary. Sometimes everything can suddenly fall apart. I just don't know when that will happen."