Federal Reserve Bank of New York
Summary of Economic Activity
Economic activity in the Second District continued to decline modestly amid heightened uncertainty in large part due to shifts in tariff policy and the conflict in the Middle East. Manufacturing activity held steady after increasing last period, while service sector activity continued to decline moderately. 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 continued to grow slightly. Housing market activity slowed as limited inventory coupled with heightened uncertainty restrained both supply and demand. Businesses expected little improvement in the months ahead, though manufacturers were more upbeat.
Labor Markets
On balance, employment held steady. Head counts among manufacturers and personal service firms increased. There was little change in education, finance, and health care, where nurses in New York City returned to work after a strike ended. However, firms in construction and information reported slight declines in staffing, and contacts from the business services, retail, and leisure and hospitality industries noted steeper drops.
The demand for labor generally was subdued in a continued low-hire, low-fire environment, though contacts reported a slight pickup. Finance professionals and high-skilled tech workers, especially those with AI skills, were in high demand. At the same time, AI reduced demand for entry-level workers performing routine tasks and hiring remained soft for tech workers more generally and for customer service workers. A New York City-based manufacturer noted difficulty hiring machinists was impeding their ability to ramp up production, while an upstate New York wood mill reported difficulty finding staff for more physically-demanding jobs. Contacts reported no major layoffs during the period, though some anticipated head count reductions in the coming months.
Wage growth held steady at a modest pace. A payroll services firm noted that workers switching jobs were not receiving the usual premium for doing so, weakening the typical incentives for job mobility. Contacts anticipated continued modest wage growth in the coming months.
Prices
The pace of selling price increases remained moderate, and input price increases picked up markedly. Many firms saw an increase in energy costs due to the conflict in the Middle East, including fuel surcharges. One contact reported a significant increase in the cost of freight and agricultural ingredients. More broadly, manufacturers reported particularly sharp increases in the cost of steel, plastics, and electronics. Some businesses reported raising prices to offset the constellation of rising costs. Some contacts said they had difficulty making pricing decisions in response to changing tariffs. Contacts expected pricing pressures to continue in the coming months.
Consumer Spending
Consumer spending continued to grow slightly. Harsh winter weather took an unusually large bite out of activity through March, though conditions improved more recently with the usual spring uptick. Multiple restaurant owners noted reduced foot traffic and volatile sales. One contact reported that consumers were being cautious due to the conflict in the Middle East. A restaurateur observed that spending by working-class consumers was being restrained by the higher cost of cars, insurance, and food. A retailer noted a shift from cash to credit card payments, suggesting consumers were more inclined to borrow to support spending. Auto dealers in upstate New York reported that car sales had firmed somewhat after an exceptionally slow start to the year. Used car sales were more mixed. Affordability remained a concern, though manufacturer incentives and zero percent financing became more widespread.
Manufacturing and Distribution
Manufacturing activity held steady after a modest increase during the early part of the year. Contacts noted greater uncertainty due to changing tariffs and the Middle East conflict, upending pricing schedules and making customers hesitant to commit to purchases. Despite these headwinds, some firms reported strong momentum, and one contact noted orders from overseas improved for the first time in several months. Unfilled orders picked up slightly. Supply availability began to worsen somewhat, and contacts noted that lead-times for high nickel alloys and lumber remained long. Wholesalers saw an uptick in activity, although activity among transportation and warehousing firms declined. A shipping contact noted that import volumes continued to grow, even as shipping costs ballooned with higher fuel prices. Manufacturers remained optimistic that activity would continue to increase in the months ahead.
Services
Activity in the service sector contracted moderately. The leisure and hospitality sector experienced another sharp decline, while activity fell more moderately in health care, business services, information, and personal services, with some contacts noting that winter storms restrained activity. By contrast, education contacts reported a small uptick in activity. The conflict in the Middle East injected a layer of uncertainty around energy costs and broader economic conditions, and some contacts reported reverting to a more cautious posture after positive signs earlier in the year. An indoor golf facility paused capital improvements and hiring. A New Jersey-based landscaper reported needing to absorb increased fuel costs on previously contracted work, pinching margins.
New York City's tourism sector continued to show positive momentum, although there were mounting concerns about potential impacts from the Middle East conflict. Hotels saw rising occupancy, though daily rates dipped slightly in March. Broadway ticket sales remained strong. Looking ahead, contacts expressed concerns that the conflict could weaken global demand for travel and create logistical disruptions to flight availability, as major Middle Eastern hubs like U.A.E. and Qatar serve as critical connection points for overseas travelers to New York.
Real Estate and Construction
Housing market activity slowed slightly, as financial market volatility and rising mortgages rates kept potential buyers and sellers on the sidelines. Many homeowners opted to stay put, further constraining already low inventory levels across the District. Home prices continued to rise amid tight supply. The rental market remained tight in and around New York City. As mortgage interest rates edged up, many potential buyers looked to rent, pushing up rental demand.
Commercial real estate markets continued to improve. New York City's office market strengthened, with solid demand from the finance sector and private credit firms. Leasing surged among AI-related firms, though deals tended to be smaller and with shorter lease terms, reflecting the experimental nature of the companies involved. Sublease space in New York City declined, signaling improving office market fundamentals. Industrial leasing was strong across New York and New Jersey, possibly reflecting pent-up demand after a tariff-induced pause. Construction activity continued to decline at a moderate pace.
Banking and Finance
Activity in the broad finance sector was largely unchanged. Small- to-medium-sized regional banks reported that demand for consumer loans declined since the previous period, although there were increases in demand for residential and commercial mortgages, as well as for refinancing. Contacts reported that credit standards had tightened somewhat for all types of loans. Deposit rates continued to move lower. Delinquency rates increased slightly, though one contact noted the deterioration was concentrated in loans that were seriously past due.
Community Perspectives
Community organizations and nonprofits reported that rapidly rising energy costs driven by the conflict in the Middle East and severe weather were straining finances for low- and moderate-income households. Utility bills are rising faster than incomes, intensifying financial stress and sharply increasing the demand for social services. A food pantry operator described long lines and unusually high demand. Some localities implemented temporary gas tax caps, and New York State proposed allocating resources to expand public transit options to ease transportation cost burdens.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy.