Beige Book Confirms Uncertainty, Fuel Costs Surged On Iran War As Economy Grew At "Slight To Modest" Pace

US economic activity continued to increase at a "slight-to-modest" pace across most regions as the war with Iran generated a new wave of uncertainty and higher energy costs, the Federal Reserve said. The just released Beige Book - which featured information compiled by the New York Fed and collected through April 6, capturing the early effects of the war on the US economy - was the first one to discuss the state of the US economy after the Iran war started, and came at time when gas prices sstayed above $4/gal for two weeks after the biggest monthly jump in decades, with March fuel spending up 16% according to Bank of America card spending data.

So far, Bank of America said that discretionary spending remains resilient—but risks rise if Hormuz disruptions persist. The Fed agreed, with the Beige Book reporting that overall economic activity increased at a slight to modest pace in eight of the twelve Federal Reserve Districts, while two Districts reported little change (San Francisco and St Louis), and two Districts reported slight to modest declines (Boston and New York).

Price growth remained moderate overall, but energy and fuel costs rose “sharply” in all 12 Fed districts, the central bank reported in its Beige Book survey of regional business contacts released Wednesday.

“The conflict in the Middle East was cited as a major source of uncertainty that complicated decision-making around hiring, pricing and capital investment, with many firms adopting a wait-and-see posture,” the Fed said.

Bloomberg's NLP model that measures net sentiment by evaluating hawkishness (+ score) and dovishness (- score) pictured below. Recent reading comes in at +1.2.

Several policymakers have signaled a preference to keep borrowing costs steady for quite some time while they evaluate the economic data. Officials are expected to leave their benchmark rate unchanged when they meet on April 28-29, according to pricing in futures contracts. A growing number of officials are concerned the war could fuel inflation, and more favored language at their March gathering that would have made it clear the Fed may need to raise interest rates.

Taking a closer look at the Beige Book, the conflict in the Middle East was cited as a major source of uncertainty that complicated decision-making around hiring, pricing, and capital investment, with many firms adopting a wait-and-see posture.

• Manufacturing activity rose slightly to moderately in most Districts. Banking sector activity was generally steady with loan demand stable to up moderately.
• On balance, consumer spending increased slightly despite harsh winter weather in some regions and higher fuel prices.
• Many Districts continued to report signs of consumer financial strain, increased price sensitivity, and rising demand at food banks and other social service organizations, while spending among higher-income consumers was resilient.
• Housing market activity softened across several Districts as heightened uncertainty and rising mortgage rates dampened buyer demand.
• Commercial real estate markets improved, with strength in industrial properties, especially data center projects. Office markets saw solid demand for Class A space but weaker demand for lower-tier properties.
• Energy activity was up slightly as oil prices rose, though many producers remained cautious about increasing drilling due to uncertainty about the persistence of higher prices. Agricultural activity was mixed, and several Districts reported that rising crop prices helped offset steep price increases of fertilizer and fuel.
• Business outlooks varied amid widespread uncertainty about future conditions.

In terms of Labor Markets, the Beige Book noted the following: 

• On balance, employment was steady to up slightly during this reporting period, though one District noted a slight decline.
• Most Districts described labor demand as stable, with low turnover, minimal layoffs, and hiring mostly for replacement.
• Several Districts noted increased demand for temporary or contract workers, as firms remained cautious about committing to permanent hires.
• Many Districts reported that labor availability had improved, although difficulty finding some skilled workers, especially in the skilled trades, persisted.
• While most Districts indicated that AI had not yet significantly impacted overall staffing levels, some noted that AI-driven productivity improvements had enabled many firms to delay or reduce hiring. Wages generally continued to rise at a modest to moderate pace.
• Some Districts noted continued wage pressures for some roles in health care and the skilled trades, though overall wage competition remained muted.

Energy prices were sharply higher 

• Price growth mostly remained moderate overall, with the vast majority of Districts reporting moderate increases and others pointing to modest growth. Generally, input cost increases outpaced selling price growth, compressing margins.
• Energy and fuel costs rose sharply in all Districts, attributed to the Middle East conflict, leading to higher freight and shipping costs and higher prices for plastics, fertilizers, and other petroleum-based products.
• Input cost pressures beyond energy-related increases were also widespread. Several Districts reported rising prices for metals due to tariffs, such as steel, copper, and aluminum. Technology costs rose for both hardware and software. Insurance premiums and health care costs continued to climb.

Finally, here are the main highlights by Fed districts:

• Boston: Economic activity declined slightly, employment and wages were flat, and prices rose at a moderate pace. Consumer spending was flat, as was activity in most sectors, but home sales slowed further. The conflict in the Middle East contributed to rising energy prices and created fresh uncertainty, though the outlook remained optimistic on balance.
• New York: Economic activity continued to decline modestly amid heightened uncertainty in large part due to shifts in tariff policy and the Middle East conflict. On balance, employment held steady, and wage growth remained modest. The pace of selling price increases remained moderate, and input price increases picked up markedly. Consumer spending grew slightly. Businesses generally expected little improvement in the months ahead.
• Philadelphia: Economic activity in the Third District grew slightly, down from a modest pace last period. Employment declined slightly, and wages again rose modestly. Prices continued to rise moderately, although cost pressures increased. Activity held steady for nonmanufacturers and increased moderately for manufacturers. Firms expect growth over the next six months, but uncertainty has risen further.
• Cleveland: Fourth District business activity increased modestly, with similar growth expected in the months ahead. Manufacturers reported increased demand, while retailers saw modest declines amid higher fuel prices. Residential real estate rebounded after a harsh winter. Employment grew slightly, and wages increased moderately. Nonlabor costs remained robust, while selling prices grew moderately.
• Richmond: The regional economy continued to grow modestly in recent weeks. Consumer spending on retail, travel, and tourism increased modestly. Nonfinancial service providers also reported modest growth in demand. Other sectors of the regional economy reported little change this cycle. Employment expanded slightly, wages picked up modestly, and price growth remained moderate.
• Atlanta: Economic activity grew at a modest pace. Employment remained flat and wages rose modestly. Prices and input costs also increased modestly. Retail sales and travel continued to expand. On balance, residential and commercial real estate conditions improved. Transportation and manufacturing activity expanded. Energy activity rose, but agricultural conditions were flat.
• Chicago: Economic activity in the Seventh District increased slightly over the reporting period. Manufacturing demand rose modestly; consumer spending increased slightly; construction and real estate activity, employment and business spending were flat on balance; and nonbusiness contacts saw no change in economic activity. Prices rose moderately, wages rose modestly, and financial conditions tightened modestly. Farm income expectations for 2026 declined some.
• St. Louis: Economic activity has remained unchanged since our previous report. Employment levels were unchanged and wage growth was moderate. Prices have risen moderately, but several contacts expressed concern about escalating energy costs. The outlook remains cautiously optimistic, yet contacts are attentive to risks to the economy associated with the conflict in the Middle East.
• Minneapolis: District economic activity increased slightly. Employment increased slightly and labor demand turned positive over the past two months. Prices increased modestly overall, but input price pressures intensified as oil price spikes fed through to freight and raw materials. Contacts across industries reported significant uncertainty.
• Kansas City: The Tenth District's economy grew slightly over the reporting period, while employment levels remained flat. Manufacturing firms indicated suppliers have implemented automatic surcharges tied to logistics and energy inputs. District oil and gas activity remains steady. Overall, prices have increased modestly.
• Dallas: Economic activity in the Eleventh District expanded slightly. Manufacturing output growth slowed, while activity in services was largely flat. Energy sector activity ticked up, and bank lending increased on strength in commercial real estate, while home sales were slow. Employment grew slightly, while wages and prices increased modestly to robustly. Outlooks deteriorated amid elevated geopolitical uncertainty and fuel price concerns.
• San Francisco: Economic activity was stable at subdued levels over the reporting period. Employment levels were unchanged on net. Prices rose moderately, driven primarily by higher energy costs, while wages grew slightly. Retail sales grew slightly. Conditions were stable in services and manufacturing, down in agriculture, and mixed in real estate.