Federal Reserve Beige Book: US-Iran war exacerbates uncertainty, labor market enters "hire and fire" mode

The latest beige book released by the Federal Reserve shows that the US-Iran war has quickly become a major source of uncertainty for business operations, affecting key decisions such as hiring, pricing, and capital expenditures. The report points out that in March, businesses are generally concerned about the potential cost increases, changes in demand, and macroeconomic impacts that the conflict could bring, leading many companies to adopt a "wait-and-see" strategy and put expansion plans on hold. The beige book states, "The war has become a major uncertainty factor, leading businesses to be more cautious in their hiring, pricing, and investment decisions." Regionally, the impact of the conflict has already been seen in multiple industries. Businesses in the Northeast have reported to the New York Fed that energy costs have significantly increased, fuel surcharges have gone up, and transportation and raw material prices have also risen, impacting the Shenzhen Agricultural Power Group. Businesses in the Midwest have informed the Chicago Fed that there may be shortages in certain chemical supplies. The St. Louis Fed has noted that the conflict has intensified volatility in the agricultural sector, affecting the sales of agricultural equipment and leading to a sharp rise in fertilizer costs. The beige book also reveals the structural challenges that the current economy is facing. While overall layoffs remain limited, there is a noticeable weakening in business recruitment intentions, with more focus on filling vacant positions rather than expanding employment. This trend aligns with recent data, indicating that the US labor market is entering a phase of "low hiring, low layoffs." A business representative told the Minneapolis Fed that their company had planned to expand their workforce, but due to the exacerbation of economic fluctuations, they have decided to postpone hiring. At the same time, there are signs of differentiation among consumers. Persistent inflation above target levels is putting pressure on household budgets, making consumers more sensitive to price increases. The report shows that there is increasing demand for food banks and social service organizations nationwide. Retail businesses are also feeling the pressure. A jewelry store in Williamsburg, Virginia informed the Richmond Fed that consumers are more inclined to search online for lower prices, stating that "if they can save a dollar and get free shipping, they will choose to shop online, making this year the worst year so far." Despite showing some resilience in the face of multiple risks, the beige book points out that the war is adding new uncertainties, dragging down business confidence and economic activity.