Federal Reserve Bank of New York
Summary of Economic Activity
Economic activity in the Second District continued to decline modestly this period. Manufacturing activity edged down after increasing last period and service sector activity continued to slump. Employment declined slightly and wage growth remained modest, with ongoing reports of layoffs at major employers in the region. The pace of selling price increases picked up further but remained moderate. On balance, consumer spending was up slightly over the holiday season, buoyed by strong spending from higher-income consumers. Housing market activity picked up, especially in New York City. Activity in the broad finance sector declined modestly. Businesses generally expected little improvement in the months ahead, though manufacturers were more optimistic.
Labor Markets
On balance, employment continued to decline slightly. Small declines were reported in the education, health-care, and wholesale sectors, while contacts in construction and leisure and hospitality reported more pronounced declines. Employment was flat in the information, personal services, and business services sectors, while employment in the manufacturing and finance sectors edged higher.
On the whole, demand remained subdued as businesses were hesitant to hire, and attrition remained exceptionally low. Finance and sales professionals were reportedly in high demand, and workers with artificial intelligence skills remained highly sought after, while the demand for tech workers more broadly softened. The demand for marketing professionals has also waned, partly due to increased efficiencies brought about by AI. Labor supply continues to exceed labor demand, though a shipping and distribution contact noted that warehouse day laborers had become harder to find due to changes in immigration, leading to some shipping delays. Layoffs continued at some major employers in upstate New York and in New York City.
On balance, wage growth remained modest. Firms in health care reported particularly strong wage growth, while wage growth in business services, finance, and education saw very little increase. Notably, a payroll services firm reported that there was no wage premium for workers who switched jobs. Despite current modest wage growth, contacts anticipated an uptick in the coming months.
Prices
On balance, the pace of selling price increases picked up further but remained moderate. Input price increases accelerated, except among manufacturers where such increases remained elevated, but slowed somewhat. Several contacts noted that price pressures from tariffs were pushing up selling prices and weighing heavily on profitability, while uncertainty was limiting their ability to set prices and plan ahead. An auto parts dealer from Long Island reported that increased costs due to tariffs on goods imported from India have mostly been passed on to customers. A coffee roaster noted that while tariffs on coffee have largely been lifted, selling prices will only go down once the stock of inventory acquired at higher costs has been cleared. Contacts across several sectors noted that sharply rising health insurance costs were a significant burden. In upstate New York, contacts noted strong increases in electricity costs. Firms anticipated ongoing significant price increases in the months ahead.
Consumer Spending
On balance, consumer spending was up slightly over the holiday season, buoyed by strong spending from higher-income consumers. Contacts reported slumping sales for mid-to-lower end goods, though luxury items continued to sell well. A contact at a large hospitality group noted that demand for higher-priced dining was strong, while the middle segment of dining remained challenging. Many smaller retailers saw ongoing sharp declines in activity. A New Jersey retailer noted that demand had begun to increase for home-related products, such as building materials and furniture, while apparel demand was roughly flat. By contrast, auto dealers in upstate New York reported that sales of new vehicles continued to decline since the previous report, as the end of EV-related credits and a softening of typical year-end manufacturer incentives, including for leasing, dampened demand. Used car sales were sluggish.
Manufacturing and Distribution
Manufacturing activity declined slightly after increasing during the last reporting period. New orders were unchanged, and shipments edged down. Uncertainty around evolving tariffs and sharply rising health insurance costs continued to present challenges to manufacturers in the District. Supply availability worsened slightly, and one contact noted shortages due to supply chain issues in the semiconductor industry. Activity continued to decline among wholesale and distribution firms, though a shipping industry contact noted that activity remained exceptionally strong, boosted by declining fuel prices. Manufacturers became more optimistic about the outlook.
Services
Activity in the service sector continued to decline moderately, maintaining a year-long slowdown. Firms in personal services and leisure and hospitality reported particularly steep declines, while businesses in education and information reported only modest slowing. Activity in business services and health care held steady. A residential services contractor in Northern New Jersey noted that customers are holding back on purchases they do not have to make.
By contrast, New York City's tourism sector was strong during the holiday season after a lull during the previous period. Hotel bookings were up compared to last year, with rates continuing to rise. Activity at attractions was mixed, with mid-tier and family-oriented attractions reporting weaker visitation, while flagship art museums and cultural institutions had a strong holiday season. Looking ahead, tourism contacts were optimistic, especially due to group travel bookings coming through around the upcoming World Cup.
Real Estate and Construction
Housing market activity picked up, with continued strong demand and limited supply. In New York City strong demand resulted in higher sales, lower inventories, and higher prices. A lack of inventory continued to restrain activity across upstate New York and New York City's suburbs amid strong demand, pushing up prices. Bidding wars remained prevalent, and cash deals continued to be more common than usual. With ongoing price increases, affordability remained a major concern.
Rents rose to another all-time high in New York City, and leasing activity picked up. Apartments at the higher end of the market are seeing a particularly rapid increase in rents.
Commercial real estate markets generally continued to improve. New York City's office market continued to recover, with rents edging upwards and vacancy rates declining. Retail markets saw some improvement, with rents rising and demand edging up. Still, industrial markets across the District worsened, with sluggish rent growth and declining demand since the last reporting period. Construction activity remained weak across the District.
Banking and Finance
Activity in the broad finance sector declined modestly. Small-to-medium sized banks in the region reported that loan demand declined since the previous period, especially for consumer loans and residential mortgages. Credit standards tightened for all loan types. Deposit rates continued to move lower. Delinquencies remained elevated but were mostly unchanged, though some banking contacts reported rising auto loan delinquencies.
Community Perspectives
Low-to-moderate income populations and the elderly have experienced mounting barriers to maintaining adequate health insurance. Premiums have increased sharply, and a loss of insurance subsidies has also raised costs. Many people have lost access to low cost and free health insurance plans. Vulnerable populations also face transportation impediments and difficulty with online access and literacy, limiting their ability to access clinics and telehealth services. In response, state governments and community organizations are expanding downstream health services in senior centers, providing training for digital health tools, and are considering contributing to health insurance subsidies.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy.