MW U.S. economy is showing the strain from Iran war as nearly 3-month conflict drags on

By Jeffry Bartash

S&P: Surge in inflation raises the cost of living and damages the job market

The U.S. economy is showing some strain. Shown: Customers shopping this week at a Lowe's home-improvement store in Chicago.

The numbers: The U.S. economy is showing the strain of the nearly 3-month-old conflict with Iran as another flareup in inflation has raised business costs and pared customer demand.

The S&P Global U.S. services index slipped to 50.9 in May from 51.0 in the prior month, leaving it just barely above the cutoff point between expansion and contraction.

The service side of the economy - banks, retailers, hospitals and so forth - employs most Americans.

A similar S&P survey of U.S. manufacturers, meanwhile, rose slightly to a four-year high of 55.3 from a prior 54.5. Yet chief business economist Chris Williamson attributed the increase to companies boosting orders to avoid price increases tied the war.

The conflict drove up oil prices and created scattered shortages in key commodities such as fertilizer.

"The damaging economic impact from the war in the Middle East is becoming increasingly evident in the business surveys," Williamson said.

The S&P surveys are among the first indicators each month to assess the health of the economy. Any number above 50 signals growth.

Key details: New orders, a sign of future sales, softened among service companies.

Manufacturers reported another increase in orders, but they were not sure it was sustainable. Exports in particular suffered.

The cost of business supplies posted the biggest increase since 2022, forcing companies to lift prices on customers or to cut jobs to offset their own rising expenses.

As a result, employment fell in May for the second time in three months, S&P said.

Big picture: The economy has been stunted by the Iran war and rising gas prices, but so far it hasn't slowed down much. Low unemployment, a pickup in hiring and a booming stock market are fueling growth.

Yet a recent increase in inflation has virtually ruled out further interest-rate reductions by the Federal Reserve. And, as the S&P surveys show, the longer the conflict goes on, the greater the threat it poses to the economy.

Looking ahead: "Inflation looks set to rise further just as the economy cools," Williamson said.

Market reaction: The Dow Jones Industrial Average $(DJIA)$ and S&P 500 fell in Thursday trades.

-Jeffry Bartash

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May 21, 2026 11:01 ET (15:01 GMT)

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