Federal Reserve Bank of New York
Summary of Economic Activity
Economic activity in the Second District increased slightly, led by strength in manufacturing. Elevated energy costs, tariffs, rising interest rates, and geopolitical and policy uncertainty weighed on businesses and consumers. Service sector activity was little changed, on balance. Employment was steady to up slightly, and wage growth remained modest. Selling price increases picked up to the high end of the moderate range, while input prices continued to rise strongly. Consumer spending edged up, buoyed by higher-income households. Housing market activity was little changed, as persistently tight supply continued to limit sales and push prices higher. Businesses generally expected little improvement in the months ahead, although manufacturers were more optimistic.
Labor Markets
On balance, employment was steady to up slightly. Employment increased at a solid clip in the manufacturing sector, and rose in the transportation and warehousing, construction, and wholesale trade sectors, while head counts declined in the education, personal services, and health-care sectors. Larger businesses continued to outperform smaller ones, with larger businesses hiring for growth and smaller businesses remaining in a "low hire, low fire" environment.
Labor supply and labor demand were relatively balanced, on net. A payroll services contact reported that finding workers was generally not difficult, though workers in the skilled trades remained scarce. A number of manufacturers continued to report difficulty hiring qualified production workers, and contacts in landscaping, restaurants, home health care, and passenger transportation cited persistent trouble finding and retaining reliable workers. However, a childcare provider noted a readily available supply of applicants. Some larger organizations were beginning to cut selected jobs or hold off on hiring as they integrated AI into their operations, and demand for marketing roles softened. There were no reports of large-scale layoffs in the region, though a few smaller firms reported cutting staff in response to lost business and rising costs. Wage growth remained steady and modest, though wages rose more strongly in the construction sector.
Prices
The pace of selling price increases picked up to the high end of the moderate range, while input prices continued to rise strongly. Tariffs remained a widely cited cost pressure for manufacturers, wholesalers, and retailers, some of whom had little room to pass costs on while others raised prices in response. Energy and fuel costs remained a drag on profit margins, particularly for transportation, landscaping, and other fuel-intensive businesses. A food manufacturer noted it had not seen such broad-based inflationary pressures since the pandemic. Contacts renewing health insurance plans reported steep premium increases alongside higher deductibles and co-pays. Firms did not expect pricing pressures to ease in the coming months.
Consumer Spending
Consumer spending continued to edge up, with strength from higher-income households. A supermarket contact reported an uptick in purchases of higher-priced, higher-quality products among some shoppers. At the same time, signs of strain among lower-income households were evident. A payroll services contact noted rising 401(k) hardship withdrawals and growing use of earned-wage advances among lower-income workers and those with heavy health-care costs.
Upstate New York auto dealers reported new vehicle sales had softened, citing affordability, high gas prices, and rising interest rates. Still, luxury brands outperformed lower-priced volume brands, pointing to ongoing strength among more affluent buyers. Manufacturer incentives picked up but were not widespread. Used car sales softened.
Manufacturing and Distribution
Manufacturing activity grew moderately following a solid pickup last period. An industrial equipment manufacturer reported a surge in semiconductor, electronics, government, and aerospace orders, though demand in other segments declined. Delivery times lengthened, and supply availability continued to worsen. A number of manufacturing contacts reported that tariffs were raising input costs, disrupting supply chains, and damaging cross-border trade, particularly with Canada. Several contacts noted that tariff uncertainty was leading customers to delay capital projects and had complicated planning. Wholesale and distribution firms reported a moderate increase in activity. A shipping contact reported continued strong import demand despite congestion at Asian ports and elevated diesel costs, with importers paying a premium for air freight to ensure arrival ahead of the holiday season. Another shipping contact said import volumes remained resilient, as buyers of specialized machinery and components had no domestic alternatives, though exports continued to lag. On the whole, manufacturers remained optimistic about the outlook.
Services
Service sector activity was little changed, on balance. There was slight growth in the information sector, while contacts in consumer-facing sectors, business services, and health care noted softer demand. A tech consulting firm said growing client interest in AI data preparation and governance was a bright spot even as broader capital spending decisions remained on hold. A childcare provider reported a significant decline in business.
Tourism activity in New York City remained solid, buoyed by domestic travelers and day visitors, while international visits were weak. Hotel demand remained strong, and nightly rates remained exceptionally high. After some weakness during the summer, attractions reported a pickup in visits, approaching more normal levels. Tourism contacts were optimistic, with strong advance bookings for the coming months.
Real Estate and Construction
Housing market activity was little changed. Persistently low inventory continued to limit sales and push prices higher, though listings continued to edge up in most of the District. Still, with mortgage rates rising again, lock-in remained a key issue holding back homeowners from moving. In New York City, activity was concentrated at the high end as buyers who had been waiting for lower rates began to capitulate, and inventory fell slightly.
Rental markets strengthened, particularly in New York City where rents remained near historic highs. A New York City real estate contact noted that rising mortgage rates typically push more households into the rental market and expected rents to remain elevated for some time.
Commercial real estate markets remained strong, led by a hot office leasing market in New York City. Manhattan office leasing continued at a brisk pace, with bidding wars for top-tier space. Multiple contacts reported that sales of commercial properties slowed in recent weeks, as rising interest rates reduced demand. Industrial demand remained strong, largely driven by data centers. Construction activity held steady after several months of strong growth.
Banking and Finance
Activity in the broad finance sector picked up slightly. Small- to medium-sized banks reported lower demand for business loans, while demand was flat for consumer loans and commercial mortgages, and slightly higher for residential mortgages. Refinancing activity was little changed. A regional bank reported resetting its loan stress-test assumptions to reflect higher rates, and another financial sector contact said interest rate exposure had become the dominant question among banks and institutional investors, citing significant repricing on maturing fixed-rate loans. Credit standards tightened slightly for business loans and commercial mortgages but were unchanged for other products. Deposits declined. Delinquency rates moved slightly higher.
Community Perspectives
Community organizations across the District reported surging demand for food and emergency assistance as stricter eligibility and work requirements for SNAP and Medicaid took effect. Food pantries saw a sharp rise in first-time users, with one nonprofit leader describing strains comparable to the pandemic but without the accompanying philanthropic and government support. One agency noted eligible working families and seniors were losing benefits after missing recertification deadlines or being deterred by complex paperwork. An organization assisting mixed-immigrant status households with benefits applications reported clients served at some locations fell dramatically, as families feared applying could jeopardize their immigration status.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy.