Frozen Labor Market

MONETARY

• Pursuant to the Federal Reserve’s June release of its Beige Book publication, the Fed noted various ongoing developments regarding the U.S. Economy¹
  • The report noted that overall economic growth remained positive, and that a continuation of consumer spending bifurcation was a theme since the last reporting period¹
    • (Federal Reserve) “Economic activity increased at a slight to moderate pace for ten of the twelve Federal Reserve Districts, while one District reported a slight decline and one reported no change. Consumer spending remained mixed across Districts and increasingly bifurcated across income groups amid affordability pressures. Higher-income households remained resilient and less sensitive to price increase, while middle-income households were described as “squeezing more life out of every dollar before deciding to spend it,” and low-income consumers showed greater financial strain.”¹
  • Effects of volatility in the energy markets were also noted¹
    • (Federal Reserve) “Agriculture conditions were unchanged or declined for most of the Districts, with cost pressures intensifying from fuel and fertilizer spikes. Energy activity increased in two of the markets, but Districts reported that the outlook remains highly uncertain leading producers to hold off on materially expanding activity.”¹
  • The ‘low-hire low-fire’ labor market theme continued on, while pockets of the economy experiencing structural secular growth stood out¹
    • (Federal Reserve) “Employment showed little to no change across eleven Districts, while one District experienced modest growth. Manufacturing hiring was the strongest sector in several Districts, supported by defense-related activity and rising data center demand”¹
  • Wage growth was positive but was seen as being more or less in-line with the general level of inflationary pressures given the recent uptick in energy related costs
    • (Federal Reserve) “Wage growth generally remained modest to moderate and largely in line with inflation. That said, Districts reported more frequent wage adjustments and cost-of-living increases to manage increasing fuel and other household cost pressures.”¹
  • Inflationary pressures were entirely dominated by developments in the Middle East having an outsized impact on energy related costs
    • (Federal Reserve) “Prices increased at a moderate to strong pace overall, with most Districts reporting higher inflation than the previous report. Districts noted that energy-related costs tied to the conflict in the Middle East were the primary driver of inflationary pressures, with spillovers into shipping, packaging, groceries, and fertilizer.”¹
    • (Federal Reserve) “Consumer uncertainty and concerns about fuel prices impacting households were noted by several Districts. Several regions highlighted inflation mitigation strategies of firms that ranged from supply-chain optimization, product adjustments, reduced offerings, and temporarily absorbing higher costs to preserve customer demand.”¹
  • Businesses future outlooks remained relatively uncertain due to geopolitical developments
    • (Federal Reserve) “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.”¹

GEOPOLITICS

• The United States/Iran conflict remains ongoing as visibility around peace talks remains cloudy. Recent noteworthy developments regarding the conflict include:²
  • U.S. and Iranian negotiators reached a tentative agreement to extend an existing ceasefire by 60 days. This window is intended to kickstart a new round of negotiations focusing on Iran’s nuclear program. A core component involves Iran agreeing to give up its stockpile of highly enriched uranium, though the mechanics of how that will happen remain a sticking point.²
    • Despite the tentative ceasefire, military friction continued. The U.S. military carried out “self-defense” strikes targeting Iranian missile sites and boats suspected of placing mines. U.S. forces also intercepted multiple one-way attack drones in the region.²
  • The U.S. Treasury officially designated Iran’s newly formed “Persian Gulf Strait Authority” as a sanctioned entity, characterizing it as an extortion scheme linked to the Islamic Revolutionary Guard Corps (IRGC). The U.S. also sanctioned numerous entities involved in Iran’s illicit oil trade and Nobitex, Iran’s largest digital asset exchange.²
  • A missile strike occurred near Kuwait International Airport, while Iran and its “Axis of Resistance” threatened further escalation in the Bab el Mandeb Strait and northern Israel if the U.S. does not pressure Israel to halt its military operations against Hezbollah in Lebanon²
  • In response to the highly unpredictable security environment, the U.S. State Department issued a renewed security alert, urging extreme caution and maintaining “Do Not Travel” advisories for Iran, Lebanon, Iraq, and surrounding areas²
• The Trump administration made three major trade policy moves during the first week of June 2026. The most significant is a sweeping proposal for new tariffs targeting 60 countries over forced labor concerns, largely seen as an effort to replace the revenue from the emergency global tariffs that the Supreme Court struck down in February³
  • Section 301 “Forced Labor” Tariffs³
    • 10% Duties (16 Economies):
      • Targets include the European Union, the United Kingdom, Canada, Mexico, and Taiwan³
    • 12.5% Duties (44 Economies)
      • Targets include China, Japan, India, South Korea, and Switzerland³
    • These tariffs are subject to a public comment period, with hearings scheduled for early July³
  • Targeted Reductions to Section 232 Downstream Metal Product Tariffs³
    • Reduced Rates for Heavy Equipment:
      • Tariffs on agricultural machinery, residential HVAC systems, and certain industrial/mining equipment will drop from 25% to 15%³
    • U.S.-Origin Incentive:
      • A new 10% tariff tier was created for imported products manufactured using at least 85% U.S.-origin steel, aluminum, or copper by weight³
    • The $166 Billion IEEPA Tariff Appeal³
      • Department of Justice officially filed an appeal on June 2 to block a massive court-ordered refund of previous tariffs³

[See Below for Disclosures & Annotations]

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

ANNOTATIONS

1. Federal Reserve. “The Beige Book”. June 3, 2026
2. The Wall Street Journal. “U.S.-Iran Skirmish Spurs Deadly Drone Attack on Kuwait Airport”. June 3, 2026
3. The Wall Street Journal. “What to Know About Trump’s Latest Tariffs”. June 3, 2026