Federal Reserve Bank of New York
Summary of Economic Activity
Economic activity in the Second District increased slightly after a sustained period of weakness. Manufacturing and distribution activity rose strongly, while service sector activity declined modestly. Employment edged up slightly, and wage growth eased somewhat but remained modest. The pace of selling price increases picked up to the high end of the moderate range, and input prices rose strongly, driven by a spike in fuel and energy costs. Consumer spending increased moderately boosted by solid retail sales. Housing market activity picked up modestly with the spring selling season. Businesses expected modest improvement in conditions in the months ahead.
Labor Markets
On balance, employment edged up slightly. Head counts increased among manufacturing, personal services, construction, and wholesale firms, while employment declined modestly in the finance, business services, and information sectors.
Labor demand picked up slightly, though a low-hire, low-fire environment was still the norm. Sales and finance professionals remained in high demand, while hiring of entry-level tech workers was at a low, in part due to employers automating repetitive tasks. An employment agency in upstate New York noted a surplus of entry level workers on the market. A New York City area technical staffing agency reported that hiring processes had become extended, with candidates going through several months and multiple rounds of interviews before being hired. There were a few reports of layoffs across the District.
Wage growth eased somewhat and remained modest. Some contacts noted that New York State's minimum wage was putting upward pressure on labor costs and creating competitive asymmetries between states. Contacts anticipated some easing in the pace of wage growth in the coming months.
Prices
The pace of selling price increases picked up to the high end of the moderate range, and input prices rose strongly. While tariffs continued to put upward pressure on prices, contacts across several sectors noted that rising fuel and energy costs had eclipsed tariffs as a driver of price increases, significantly impacting business operations and dampening profitability. Rising energy prices drove transportation and other expenses higher for many firms. A food manufacturer in the Hudson Valley noted that higher energy costs were pushing up the cost of many inputs, including packaging, ingredients, equipment, and parts, while elevated fertilizer costs were pushing up food prices. Apple growers in New York State noted that sharply rising fertilizer costs may limit fertilizer use, and combined with an early heat wave and late frost, this year's harvest may be greatly reduced. A metal product manufacturer noted continued increases in prices for metals, including aluminum and steel. Contacts expected pricing pressures to intensify in the coming months.
Consumer Spending
Consumer spending grew moderately, and retail sales were solid. The operator of a large shopping mall reported that higher-end tenants were seeing particularly strong demand for luxury goods, while mid- to lower-end tenants experienced more subdued sales. Similarly, a department store reported that strong sales were buoyed largely by affluent consumers, with sales of accessories—especially wristwatches—particularly strong. By contrast, auto dealers in upstate New York noted a marked weakening in new vehicle sales, reflecting ongoing affordability issues and high gas prices. Manufacturers have responded by expanding incentive programs to boost demand, including subsidized interest rates. Used car sales picked up modestly, in part reflecting substitution from new cars to more affordable used cars.
Manufacturing and Distribution
Manufacturing activity grew strongly, with a substantial increase in new orders. One contact reported increased demand for automated equipment as customers sought to improve manufacturing efficiency. One firm noted that tariff uncertainty and rising energy costs were causing business customers to rethink their strategies, impacting their demand patterns. Supply availability continued to worsen somewhat, and delivery times lengthened significantly. Wholesale and distribution firms reported a solid increase in business activity. A shipping contact noted robust import volumes across a wide range of goods, even amid rising shipping costs, extended transit times, and less dependable delivery schedules. A water transportation company noted having paused domestic shipping investment due to Jones Act waivers. Manufacturers grew more optimistic about the outlook.
Services
Activity in the service sector contracted modestly, after an extended period of steeper declines. Activity held steady in the health care sector, and declined in the information, professional business services, and education sectors. Firms in the service sector expected only little improvement in the coming months.
Tourism activity in New York City declined in the spring among both day trippers and overnight visitors, though conditions improved somewhat in recent weeks. Attractions have continued to report soft demand, though hotel rates and occupancy trended upward, driven by a notable jump in luxury bookings. Optimism about the upcoming FIFA World Cup's economic impact has been tempered by weaker-than-anticipated ticket sales and advance hotel bookings.
Real Estate and Construction
Housing market activity picked up modestly with the spring selling season. Although inventory increased slightly across the District, it remained low relative to historical norms and continued to constrain sales. Housing demand strengthened in Upstate New York, with open houses well-attended and sales contracts increasing across all price points, particularly in the upper half of the market. In New York City's suburbs, bidding wars remained prevalent, and half of Long Island sales closed above asking price. With solid demand and persistently limited supply, prices continued to edge upward. A New York City contact noted that rental markets remained exceptionally tight, with record-high rents expected to climb even more steeply through the year, as many potential buyers remained on the sidelines amid higher mortgage rates.
Commercial real estate markets were strong, with leasing volumes in Manhattan's office market near record highs. Demand among AI-related firms was quite strong—though leases for such firms were shorter than typical—and year-to-date leasing volumes for such businesses have already surpassed last year's total. Vacancy rates for class A office space recovered to pre-pandemic levels, and new construction has been spurred by limited remaining supply. By contrast, rents fell amid a soft industrial market, where high ocean and truck shipping costs discouraged demand for warehousing and distribution space. Construction activity picked up to a modest pace, after an extended period of decline.
Banking and Finance
Activity in the broad finance sector grew moderately after a period of sluggishness. Small- to medium-sized regional banks reported a pickup in residential mortgage demand, although demand for consumer loans, business loans, and commercial mortgages was flat or down slightly. A banker from New York noted that high interest rates for commercial customers were suppressing demand. Contacts reported that credit standards continued to tighten slightly for all types of loans. Deposit rates edged slightly lower. While delinquency rates held steady overall, one regional bank contact reported that delinquency rates had risen for residential mortgages.
Community Perspectives
Contacts across nonprofits report significant workforce challenges marked by tight labor availability, rising costs, and pressure to operate with leaner staff. Difficulty hiring and retaining employees persists, with turnover, wage constraints, and burnout particularly acute in caregiving, social assistance, and emergency services. Several contacts emphasized that salaries have not kept pace with rising living costs, forcing some nonprofit workers to rely on the very services their organizations provide and making it difficult for others to remain in their communities. Nonprofit organizations noted that technology and AI were reshaping staffing decisions, sometimes reducing hiring needs while introducing new skill requirements.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy.