The Federal Reserve (Fed) has diagnosed that U.S. companies are struggling with new hiring and investment decisions due to the war between the United States/Israel and Iran.
The Fed released its April Beige Book economic conditions report on the 15th (local time), stating that "Middle East conflicts were identified as a major uncertainty factor complicating decision-making related to employment, pricing, and capital investment," and that "many companies are taking a wait-and-see approach." This Beige Book contains the results of economic situation surveys compiled by region from after the previous report was published on the 4th of last month until the 6th of this month. It is effectively the first Beige Book to fully reflect the Iran war period.
Regarding consumer spending, the Fed assessed that it increased slightly overall despite adverse weather conditions in some regions and rising oil prices, noting that "economic activity increased slightly to modestly in 8 of the 12 districts." According to the Fed, while many regions showed signs of pressure on consumer household finances, spending by high-income households maintained resilience. In particular, the commercial real estate market improved, and industrial real estate also showed strength, centered on data center business projects.
According to the Fed, energy companies showed a cautious attitude toward increasing production despite rising oil prices. The Fed stated, "Energy sector activity increased slightly supported by higher oil prices, but uncertainty about whether high oil prices would persist led many producers to maintain a cautious stance on expanding drilling."
Regarding the labor market, the Fed noted, "Overall, employment was stable or increased slightly, with only one district showing a slight decrease," and "most districts maintained stable labor demand through low turnover rates, minimal layoffs, and replacement hiring." It added, "Several districts reported increased demand for temporary or contract workers because companies remained cautious about permanent hiring," and "many districts saw improved labor supply, but difficulties in recruiting skilled technical workers persisted." Regarding wages, it stated they "continue to increase at a modest to moderate pace."
The Fed assessed that price increases were generally moderate, describing that most districts saw moderate increases while the remaining districts saw modest increases. In particular, it explained that "energy costs rose sharply in all districts due to Middle East conflicts," and "this led to increases in freight and transportation costs, as well as prices for plastics, fertilizers, and other petroleum-based products." It also added that technology costs for hardware and software, insurance premiums, and medical expenses continued to rise.
The Beige Book is an economic conditions report that collects recent economic trends through contact with banks, businesses, and experts by the 12 regional Federal Reserve Banks in their respective districts. It is typically released two weeks before the Federal Open Market Committee (FOMC) meeting that determines interest rate levels.
The Fed, which had cut the benchmark interest rate three consecutive times from September to December last year, froze it at 3.50-3.75% in January and March of this year. The next FOMC meeting will be held on the 28th-29th of this month.
