Federal Reserve Bank of New York
Summary of Economic Activity
Economic activity in the Second District continued to increase modestly. Service sector activity grew modestly and manufacturing growth picked up to a moderate pace. On balance, employment held steady. Wage growth was modest. Selling price increases eased slightly but remained moderate, while input prices continued to rise strongly with energy costs cutting into profit margins. Supply chain strains emerged in the tech and defense sectors. Consumer spending increased slightly, buoyed by strength at the high end. Housing market activity edged slightly higher, though inventory remained limited and prices continued to rise. Commercial real estate activity was strong. Businesses expected little improvement in the months ahead.
Labor Markets
On balance, employment held steady. Head counts rose in manufacturing, construction, wholesale trade, transportation, and information. Employment declined modestly in retail and personal services, and fell sharply in the education sector. Larger businesses generally continued to see slightly more job growth than smaller firms.
Labor demand generally held steady in a stable low-hire, low-fire environment, though there were some pockets of strength. Demand for finance workers remained robust, and manufacturing labor demand intensified, particularly in the aerospace and semiconductor industries. Highly skilled technology workers, especially AI engineers, remained difficult to source. However, an employment agency reported that demand for entry level roles in tech and administrative support was weaker, in part due to AI. Worker availability continued to improve, with one social services contact reporting the easiest hiring conditions since the pandemic began. There were no signs of large-scale layoffs in the region.
Wage growth was generally steady and modest. However, wage pressures were acute in the construction sector. Further, a manufacturing contact noted that payroll costs had increased at a stiff pace. Contacts anticipated an uptick in the pace of wage growth in the months ahead.
Prices
The pace of selling price increases eased slightly but remained moderate, while input prices continued to rise strongly. Multiple contacts across many sectors noted energy and fuel costs remained elevated and pressured profit margins. An aircraft parts manufacturer reported elevated raw material prices. Tariffs continued to add to input costs for many firms. Contacts in both the manufacturing and service sectors noted increased consumer resistance to rising prices, with some firms absorbing cost increases rather than passing them through. Looking ahead, contacts anticipated price increases would accelerate in the coming months.
Consumer Spending
On the whole, consumer spending increased slightly. A retailer reported solid sales, particularly in the luxury tier, while mid-tier sales growth reflected higher prices rather than increased volume. A moderately-priced restaurant reported increased guest counts as consumers traded down from higher-priced establishments due to inflation, with some single diners noting it's now cheaper to eat out than to purchase groceries for home-cooked meals. A historic inn reported an increasing divide between customers who continued spending robustly on higher-end events and waning demand among those seeking value-oriented offerings. A window retailer noted that sales slowed as consumers were hesitant to invest in their homes amid inflation and rising mortgage rates.
Auto dealers in upstate New York reported steady but tepid car sales. New vehicle sales remained weak amid affordability concerns, while some consumers postponed purchases and repaired existing vehicles to extend their useful life. Inventory levels edged down in recent months, with manufacturers adjusting production to avoid inventory buildups. Used car sales were also weak.
Manufacturing and Distribution
Manufacturing growth picked up to a moderate pace, with new orders and shipments posting solid increases. An upstate New York concrete products producer noted significant demand from transportation infrastructure projects and large-scale tech facilities. A precision measurement equipment manufacturer reported continued growth in semiconductor, networking, and defense sector orders, though supply chain strains were causing delays and longer lead times. Contacts in the aerospace and defense sectors also noted growing lead times for raw materials. More broadly, supply availability worsened and delivery times lengthened, while unfilled orders increased and inventories declined. Wholesale and distribution firms reported slight growth. A shipping contact reported continued strong import demand despite persistent increases in freight rates. Demand was exceptional for data center supplies from China, reducing price sensitivity to shipping costs. Another shipping contact attributed strong import volumes to frontloading ahead of potential new tariffs, though export volumes lagged. Manufacturers remained optimistic about the outlook.
Services
Service sector activity increased modestly. Although the education sector continued to decline sharply, activity increased in the health-care, leisure and hospitality, and business services sectors. A business services firm noted increasing demand for cybersecurity and AI services. Looking ahead, businesses in the service sector were less optimistic.
Tourism activity in New York City continued to strengthen during and after the FIFA World Cup finale. Visits to New York City increased and average daily hotel rates were exceptionally high. Broadway ticket sales were solid. Although attractions noted weak visits through mid-July, attendance picked back up after the World Cup ended and more normal tourism patterns returned.
Real Estate and Construction
Housing market activity edged slightly higher, though a lack of supply continued to limit sales and push up prices across the District; multiple offers and bidding wars remained common. Affordability and rising mortgage rates restrained sales in New York City. The pipeline of new construction in the City was reportedly emptying, as high interest costs undermined project viability amid elevated labor, land, and material costs.
Rental markets strengthened, particularly in New York City where rents topped new records. A contact noted that many prospective buyers of luxury properties in New York City shifted to the rental market following a proposed new tax on high-value second homes, despite the proposal being paused. Multi-family rental inventory continued to decline across the District.
Commercial real estate markets remained strong. Manhattan's office market continued its record leasing pace, driven by strong demand from AI and tech firms, with citywide vacancy at its lowest level since late 2021, and rents rose steadily. Industrial markets were particularly robust on Long Island and in New Jersey, where vacancy rates hovered at or below historical lows amid strong leasing activity and developers breaking ground on large speculative projects. Sales recovered steadily across the New York City area, with multifamily and office transactions running at their strongest pace in several years as both institutional and private capital returned to the market. Construction activity continued to grow strongly across the District.
Banking and Finance
Activity in the broad finance sector held steady. Small- to medium-sized regional banks reported that loan demand was slightly lower for business loans but edged up for consumer loans and residential mortgages. Refinancing activity declined. Credit standards tightened slightly for business loans and commercial mortgages but eased for residential mortgages. Deposits moved higher. Delinquency rates crept up for most types of loans. A senior loan officer from a New York bank noted that the increasingly poor credit quality of consumer borrowers negatively impacted loan growth, and there was increasing concern among auto lenders about rising delinquencies and defaults.
Community Perspectives
Workforce development has emerged as a critical community challenge as labor supply shortages intensify and pathways to replace retiring workers remain inadequate. Workforce development organizations report that reduced federal funding, staffing constraints, and increased competition for resources have limited their capacity to deliver training programs to low- and moderate-income populations. Employers have struggled to find and retain workers as experienced employees retire without transferring expertise. These challenges are compounded by high costs for transportation, housing, and childcare that prevent workforce entry.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy.