Beige Book Report: New York
March 5, 2025
Summary of Economic Activity
Economic activity in the Second District was little changed in early 2025. Employment grew slightly and wage growth was moderate, with labor supply and labor demand coming back into balance. Selling price increases picked up to a moderate pace after some slowing during the last reporting period, while input price increases remained moderate. Manufacturing activity edged up slightly. Consumer spending held steady, and tourism in New York City stayed near pre-pandemic levels. Housing markets remained solid, and new office leases picked up modestly in New York City. The broad finance sector weakened modestly. Many businesses noted heightened economic uncertainty and expressed concern about tariffs. Looking ahead, businesses were notably less optimistic.
Labor Markets
On balance, employment in the region continued to grow slightly. Businesses in leisure and hospitality, personal services, and healthcare and education saw modest increases in headcounts. However, construction firms reported moderate reductions, and transportation, information, finance, and business services firms noted more modest declines.
Demand for workers was steady, but employers expressed some hesitancy in hiring due to uncertainty about the outlook. Though there were no mentions of major layoffs in the District, there was some quiet downsizing at financial firms at year end leading to a slight increase in job hunters. Further, a New York City area recruiter noted that there have been a rising number of jobseekers from the healthcare sector, as hospital consolidations have resulted in some reductions in office staffing. Still, demand for workers in financial services remained solid, and some fields that were quiet much of last year, such as sales and marketing, have seen some pickup. With labor supply and labor demand back into balance, it is generally not difficult to find qualified workers.
Wage growth continued at a moderate pace. Several contacts noted that New York State's minimum wage law was a factor pushing up wages for all their workers, though some businesses reported holding the line on wages to only cost-of-living increases or even pay cuts in some industries.
Prices
Selling price increases picked up to a moderate pace after some slowing during the last reporting period. Manufacturing contacts noted a marked uptick in input price increases, while service sector firms reported that cost increases continued at about the same pace as in the prior reporting period. Prices for a number of food products increased sharply, including coffee, chocolate, and eggs; freight, insurance, and utilities costs also increased significantly. Tariffs and the impacts of shifting trade policies on prices were a source of significant concern for businesses across many industries. A manufacturing firm noted that either paying tariffs or adjusting sourcing to avoid tariffs would lead to higher selling prices. In general, firms expected some pickup in price increases in the months ahead.
Consumer Spending
Consumer spending held steady since the last report after a strong holiday sales season despite exceptionally harsh winter weather across much of the District. Auto dealers in upstate New York reported a modest increase in both new and used car sales in early 2025. Still, affordability remained a concern, and used cars have remained appealing due to the gap between the price of new and used cars. Inventory of new and used vehicles remained at healthy levels. Despite heightened uncertainty and some concerns about the impact of tariffs on global supply chains, retailers and auto dealers were optimistic about sales prospects in 2025.
Manufacturing and Distribution
Manufacturing activity edged up slightly, following a small decline in activity last period. New orders and shipments picked up. Activity among wholesale and distribution-related firms was largely unchanged. While supply availability was fairly steady, delivery times lengthened slightly. A shipping industry contact indicated that despite widespread apprehension among importers about the effect of tariffs and shifting trade policies, most are waiting until the changes are established before making any modifications to sourcing or shipping routes. Many contacts expect supply availability to worsen in the months ahead. One firm noted that interest rates are limiting investments, and capital spending plans were generally soft. Optimism among manufacturers and distribution-related firms dropped noticeably.
Services
Activity in the service sector weakened slightly. While business services firms reported steady activity, businesses in other service industries reported slight to modest declines. Service sector firms anticipated only modest growth in the coming months and were less optimistic than in the last reporting period.
Tourism activity in New York City was solid. Despite the usual seasonal slowdown, hotel occupancy rates were high and just below the levels from the same time in 2019. Broadway theatres continued to have high attendance. Even with the seasonal reprieve in hotel rates, high hotel costs cut into visitors' budgets, constraining spending on dining and other entertainment.
Real Estate and Construction
The housing market remained solid. Demand has continued to outpace supply in the New York City suburbs and upstate New York, limiting sales and pushing prices up. Exceptionally low inventory remains a constraint, and on Long Island inventory is at the lowest level in more than two decades. With inventory at relatively normal levels in New York City, new signed contracts have continued to rise. However, price dynamics in the City have been mixed, with the price of existing units moving sideways and the price of new development increasing.
The rental market strengthened. Rents continued to rise in New York City, where bidding wars were common, and a large share of units were rented at an amount over the asking rent. In upstate New York, rents remained stable at a high level. With mortgage rates still relatively high, many prospective buyers have continued to rent.
Commercial real estate markets were mixed. New York City's office market saw a modest uptick in new leases, and vacancy rates fell. Financial services firms accounted for the lion's share of new office leases. Northern New Jersey's industrial market continued to weaken slightly, with a continued rise in vacancy rates and rents declining slightly as new supply on the market has offset rising demand. Increases in industrial demand was driven in large part by third-party logistics firms from Asia as well as big box retailers. Retail markets in New York City worsened slightly, with a small uptick in vacancy rates amid sagging rents.
Construction activity declined at a moderate pace. Despite concerns about rising materials prices, construction industry contacts remained optimistic about business activity in the coming months.
Banking and Finance
Activity in the broad finance sector weakened modestly. Small-to-medium-sized banks reported that demand continued to decline for all loan types, including business loans, consumer loans, and commercial and residential mortgages, as well as refinances. One regional bank reported that rates had not dropped as much as customers had expected, dampening the demand for loans. Most banking contacts reported that credit standards continued to ease, and delinquency rates continued to improve. Deposit rates moved lower. Still, finance industry contacts remained optimistic about the outlook.
Community Perspectives
Housing shortages persist across much of the District. Although there have been some favorable changes in zoning, legislation, and availability of financing, progress in expanding the supply of housing has been limited, as communities have mounted resistance to real estate development. Still, urban neighborhoods and rural communities alike are finding some success in conversions from commercial properties, including offices but also churches and schools in more rural areas, offering some increase in supply in some communities.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy.