By Jessica Coacci
U.S. businesses endured another month of energy-driven price increases and economic uncertainty in the third month of the Iran conflict, according to a recent survey from the Federal Reserve.
Businesses started this year on a steady yet cautious footing, but higher energy prices tied to the tensions in Iran have worsened consumers' future view of inflation and driven consumer sentiment to record lows since the conflict began in late February.
While many higher-income households remained resilient and less sensitive to these increases, the report showed lower-income consumers experienced greater financial strain, consistent with the notion of a K-shaped economy.
Before the June 17 Fed meeting, the survey gives officials at the central bank anecdotal insight into how firms are feeling as the geopolitical conflict poses risks to combating inflation that's remained above their desired range.
Here are the main takeaways from May's Beige Book:
Firms Faced Margin Pressures
Most districts reported higher inflation in May than in the previous report. As economists watch whether firms will pass on their costs to consumers, non-labor input costs rose faster than selling prices, contributing to broader concerns about margin compression.
To contain the damage of higher prices to their businesses, several regions highlighted inflation mitigation strategies that ranged from supply-chain optimization, product adjustments, reduced offerings, and temporarily absorbing higher costs to preserve customer demand.
"While spot rates increased, fuel costs have kept margins very slim for trucking firms and contacts observed a substitution shift toward short-haul rail to and from ports even though it is typically more costly than trucking," a respondent from a ports and transportation firm said.
Low-hire, Low-Fire Environment Persists, Manufacturing Showed Strength
Most districts described a low-hire, low-fire environment-as workers became increasingly reluctant to hire because of economic uncertainty. Across eleven districts, employment showed little to no change, while just one experienced modest growth.
Manufacturing hiring was a bright spot in labor demand. In several districts, manufacturing hiring was the strongest sector helped by the build-out of data centers for artificial intelligence.
The Fed Bank of Minneapolis said that individuals with skills in construction, manufacturing, or health care were more likely to be hired.
The report also noted that professional services occupations had mixed demand, partly reflecting shifts in technological and operational changes. In the Fed Bank of Boston, staffing contacts observed weaker demand for entry-level workers possibly driven by AI disruption.
Spending Stronger in Higher-Income Households
Higher-income households remained resilient, while middle-income households were described as "squeezing more life out of every dollar before deciding to spend it." Low-income consumers showed greater financial strain. In several districts, residential mortgages, consumer, and agricultural loan delinquencies were noted as rising.
"Higher-income consumers drove strong demand for premium goods and services, with one contact describing a focus on 'unapologetic luxury'," the Atlanta Fed wrote.
Business Outlook Remains Uncertain
Districts reported that the outlook remains highly uncertain, leading producers to hold off on materially expanding activity, the survey said.
More broadly, business outlooks for the next six months were reported to have little change in anticipated growth, as elevated uncertainty and signs of weakening consumer spending weighed on sentiment.
The Fed Bank of Chicago said that small business intermediaries reported greater uncertainty on the part of their clients, who were increasingly reluctant to take on debt to start or grow their businesses.
Write to Jessica Coacci at jessica.coacci@wsj.com
(END) Dow Jones Newswires
June 03, 2026 15:43 ET (19:43 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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