The Middle East conflict has become the primary source of uncertainty for the current U.S. economy, according to the Beige Book report released by the Federal Reserve on Wednesday.
As a qualitative assessment of regional economic conditions across the country based on the information collected from the 12 Federal Reserve districts, the latest edition of the Beige Book describes the conflict as "a major source of uncertainty" for businesses in the most recent reporting period from February 24 to April 6.
The report shows that among the 12 Federal Reserve districts across the United States, eight districts reported slight to moderate growth in overall economic activity, two districts reported essentially flat conditions, and two others reported slight to moderate declines.
Due to the uncertainty posed by the Middle East conflict, businesses in nearly all regions have struggled to make decisions regarding hiring, pricing, and capital investment, according to the report.
It says that the conflict has driven up energy prices, leading to rising freight and transportation costs, and significant price increases for plastics, fertilizers, and other petroleum-based products, compressing corporate profit margins.
Regarding prices and consumer spending, the report says most regions reported moderate price increases, while consumer spending achieved slight growth.
However, many regions continued to report increased financial pressure on consumers, rising price sensitivity, and growing demand for food banks and other social service organizations, according to the report.
The report also shows that manufacturing activity in most districts experienced slight to moderate growth, banking activity remained generally stable, and real estate market activity cooled in multiple districts.
Additionally, the Beige Book shows that employment conditions remained stable or slightly improved, with most regions describing labor demand as steady.
Fed Beige Book flags conflict-related uncertainty over US economy
Fed Beige Book flags conflict-related uncertainty over US economy
The ripple effects of tensions in the Middle East have now spread to the major eastern Chinese trading hub of Yiwu, a city famously known as "the world's supermarket," as companies and traders try to work around the disruption and rely on strong logistics networks across the region to keep business moving.
The Yiwu International Trade Market has become an important center for foreign trade, housing nearly 80,000 booths offering over two million types of commodities. However, the recent situation brought by the U.S.-Israeli war on Iran and the disruption it has caused to both shipping transport and air cargo is forcing some traders to take steps to mitigate the impact.
Zhang Shidan, a plastic household goods trader in Yiwu, said her company has been left with no choice but to raise product prices as transportation and insurance costs have surged due to escalating tensions in the Middle East.
"We will adjust prices after the stocks of most products run out. The prices are expected to rise by 10 percent," Zhang said.
The travel turmoil brought by the conflict has also created a headache for customers from the region who are trying to reach Yiwu themselves.
"We flew from Lebanon to Egypt, from Egypt to Dubai, from Dubai to Hangzhou. It's a long time. Because in [the main] Lebanon airport, only one company can fly -- a Middle East company -- so its expensive," said Heysam Yassine, a Lebanese buyer.
While making the trip from the Middle East to Yiwu has become more difficult, logistics companies with well-established supply chain networks across the region are helping to cushion the impact on trade and working to distribute goods as best as they can.
"We have 28 warehouses across 12 countries in the Middle East, so we have a relatively complete layout in the region," said Chen Fangfang, general manager of Safe Way Express Cargo, a logistics and cargo shipping firm.
Last year, the total value of Yiwu's exports reached over 100 billion U.S. dollars, with more than 14 billion U.S. dollars going to Middle Eastern markets.
Traders in Yiwu look to work around Middle East disruption, rely on strong logistics networks
