Federal Reserve Bank of New York
Summary of Economic Activity
Economic activity in the Second District increased modestly, with service sector activity picking up after a long period of weakness and manufacturing activity continuing apace. Employment increased modestly with larger firms starting to hire for growth, and wage growth remained modest. Selling price increases held at the high end of the moderate range, while input prices continued to rise strongly, with ongoing sharp increases in the cost of fuel, freight, and some electronic components. Consumer spending increased moderately, with continued strength in the luxury sector. Housing market activity picked up slightly, constrained by low inventory. Businesses became more optimistic about the outlook.
Labor Markets
Employment increased modestly this period. Head counts rose in most sectors, with particularly strong gains in manufacturing, transportation, health, retail, personal services, and construction, though employment declined in the education sector.
Labor demand continued to pick up. A payroll services firm reported that larger firms started to hire for growth for the first time in a while—a notable shift given ongoing business uncertainty. Demand for executive leadership grew somewhat. An upstate New York employment agency noted that, promisingly, there was some new demand for workers in manufacturing and technology companies. Still, small businesses generally remained in a low-hire, low-fire stance. Contacts across several industries noted that it remained difficult to find workers, with one health-care contact in New Jersey reporting such difficulties as particularly acute. Attrition remained exceptionally low. No significant layoffs were reported.
Wage growth remained modest. However, several contacts noted that labor costs were a top concern, particularly in industries where tight labor markets continued to put upward pressure on wages. A Hudson Valley restaurant owner cited severe labor shortages and high labor costs, while an upstate New York manufacturer reported that scarce workers continued to drive wages higher to attract and retain skilled staff. Looking ahead, contacts anticipated steady wage growth.
Prices
The pace of selling price increases remained at the high end of the moderate range, while input prices continued to rise strongly. Rising fuel prices continued to drive widespread increases in the costs of freight and other inputs more generally. Tariffs also continued to exert upward cost pressures. One upstate New York manufacturer reported ongoing increases in steel and aluminum costs due to tariffs, while another expected some relief from high tariffs when temporary tariffs expired and tariff refunds were received. Another upstate New York manufacturer said they had implemented large price increases and were adding additional time for delivery for anything not in stock. Separately, an upstate New York-based technical consulting firm reported sharp price increases for memory and storage components driven by elevated demand from data center buildouts. Many businesses were continuing to pass along cost increases to customers, though some firms were concerned about consumer pushback. Contacts anticipated some slowing in the pace of input price increases in the coming months.
Consumer Spending
Consumer spending grew moderately with contacts reporting solid sales. A large department store noted particular strength in the luxury sector, while a seller of consumer cooking products reported record high sales. Still, some contacts reported consumer tentativeness and a pullback in spending. A coffee shop operator in New Jersey indicated that the average sales ticket had declined, while a dental practice in New York City noted that appointment cancellations were increasing, suggesting that some customers were cutting back on health-care spending.
Auto dealers in upstate New York reported that car sales leveled off after a period of weakness. New car sales were flat, reflecting ongoing affordability issues, while used car sales declined slightly. High gas prices have taken a larger toll in upstate New York where SUVs and pickup trucks represent a large share of sales.
Manufacturing and Distribution
Manufacturing activity grew modestly. New orders and shipments continued to expand at a solid clip. However, supply availability worsened and delivery times continued to lengthen. A tech manufacturer noted decreased availability of electronic components and printed circuit boards, while a machinery manufacturer noted increased difficulties procuring key materials from China. Manufacturing contacts supplying the defense and commercial aerospace industries reported strong demand and expected further strength ahead. Wholesale and distribution firms reported solid growth. A shipping contact noted continued robust import volumes across a wide range of goods, even amid steep rises in freight rates and persistent uncertainty around tariff policy and economic conditions. Manufacturers remained fairly optimistic about the outlook.
Services
Activity in the service sector increased modestly. Activity in the information, personal services, and health-care sectors picked up, while business services remained weak. A consumer transportation services company in the Hudson Valley reported a strong pickup in activity following a period of sluggishness. An automotive service company said that spending remained surprisingly strong. However, several business services contacts noted that ongoing uncertainty continued to restrain client spending and planning.
Tourism activity in New York City was strong, boosted by FIFA World Cup visitors, driving an increase in hotel occupancy and rates, with some restaurants and bars reporting strong sales amid watching events. International arrivals to airports picked up somewhat after lagging over the spring. However, sales were lackluster at mid-tier attractions in New York City, and some restaurants reported reduced international visitors, particularly from Canada. A department store reported increased foot traffic from World Cup visitors but no corresponding increase in sales.
Real Estate and Construction
Housing market activity picked up slightly though low inventory constrained sales in much of the District. In upstate New York, demand continued to strengthen, with solid buyer interest across price points. In New York City, the spring market showed modest improvement from last year but was somewhat underwhelming; inventory crept up but remained low, as mortgage lock-in continued to limit seller activity. Cash deals remained common. Prices continued to edge upward, and in upstate New York most transactions sold above ask.
Rental markets continued to strengthen. Rents in New York City edged higher amid steady demand and limited supply, particularly as higher mortgage rates kept potential buyers on the sidelines.
Commercial real estate markets remained strong, especially in Manhattan's office market. Demand was robust among AI-related firms seeking space. Multi-family investment lagged, with contacts citing potential risks of more stringent rent regulations in the New York City market. Industrial market conditions were largely steady. Construction activity grew briskly.
Banking and Finance
Activity in the broad finance sector continued to grow modestly. Small- to medium-sized regional banks reported that loan demand was unchanged for business loans and residential mortgages, but lower for consumer loans and commercial mortgages, as well as for refinancing. Credit standards were unchanged for consumer loans and residential mortgages but tightened slightly for business loans and commercial mortgages. While loan performance generally held steady, one senior loan officer reported an uptick in delinquencies on residential mortgages.
Community Perspectives
Community contacts reported that affordable housing supply remained critically below demand, with multiyear waitlists and stalled projects resulting from funding gaps, regulatory barriers, and limited tax credit access—particularly in rural areas. These challenges have created a housing ecosystem where families are increasingly rent burdened, doubling up, or living in hotels, while rising construction and labor costs make new development increasingly difficult. Affordable housing developers and community planners have identified a critical mismatch between household incomes and available units, which particularly affects households earning slightly above income thresholds—who earn too much to qualify for assistance yet cannot afford rising housing costs.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy.