Federal Reserve Bank of New York

Summary of Economic Activity

Economic activity in the Second District continued to increase slightly during the reporting period. Employment in the region grew slightly, on balance, and wages continued to grow moderately. Selling prices continued to rise at a modest pace, although manufacturers reported that prices largely held steady. Input price increases remained moderate. Manufacturing activity declined moderately, after strong growth during the previous reporting period. Consumer spending increased moderately since the last report, and New York City tourism was robust. Retail contacts indicated stronger than forecasted holiday sales, with stores in the District slightly outperforming the nation overall. The housing market remained strong at the end of the year, and commercial real estate markets strengthened slightly, marking the first increase after a long stretch of decline. The broad finance sector contracted slightly. Optimism about the outlook continued to improve.

Labor Markets

Employment in the region continued to grow slightly, on balance. Manufacturing firms reported little change to headcounts since the last report, while contacts in the education and health, wholesale, and finance industries saw increases. Contacts in transportation and warehousing, construction, information, and business services reported modest to moderate declines. Still, there were no mentions of major layoffs in the District.

Demand for workers picked up a bit, following an election-cycle pause, despite what is usually a slower time of the year. A contact at an upstate New York employment agency noted that finding qualified workers has continued to get easier as labor supply was greater than labor demand. This contact also reported that demand has remained strongest in the finance industry, but there is also more need for workers in sales and marketing, an indication that companies are again planning for growth. A contact with insight into employment across a broad array of industries noted there has been some uptick in firm expansions, though the resulting increase in hiring continued to be primarily for backfilling existing roles.

Wage growth has remained steady and moderate. Contacts noted that workers are on track to receive bonuses this year, but bonuses are not expected to be overly generous given the softer labor market, though Wall Street bonuses are expected to be strong.

Prices

Selling price increases continued at a modest pace, although manufacturers reported that their prices largely held steady. Input price increases remained steady and moderate. One contact noted sharply rising prices for commodity coffee, while another mentioned high prices for homebuilding supplies. Business leaders across many industries expressed concern that potential import tariffs would push up prices. More firms expected higher prices in the coming months.

Consumer Spending

Consumer spending increased moderately since the last report. Department store contacts indicated that holiday sales were stronger than forecast, with stores in the District slightly outperforming the nation overall. Higher-end items and brands, as well as beauty and fragrance items, continued to sell well, although consumers continued to seek value and responded strongly to discounts during the holiday season. Still, unusually warm temperatures led to sluggish sales of winter coats and cold weather accessories like hats and scarves. Auto dealers in upstate New York reported a strong year end. New car sales grew moderately, with manufacturer incentives continuing to spur sales, particularly among high-volume brands. Used car sales grew modestly, as price gaps between new and used cars have continued to make used cars appealing. Inventory remained at a healthy level. Generally, retailers and auto dealers are optimistic about sales in the coming months.

Manufacturing and Distribution

Manufacturing activity declined moderately, after strong growth during the previous reporting period. New orders and shipments declined. Wholesale and distribution-related firms saw continued modest increases in business activity. Supply availability and delivery times were little changed. Of note, a shipping industry contact indicated that there was an impulse among importers to stockpile goods in anticipation of tariffs, but worldwide shipping capacity continued to be limited due to Red Sea shipping route disruptions. A potential dockworkers strike in January was also contributing to some of the impulse to get ahead of demand. Manufacturers and distribution-related firms generally remained optimistic that business conditions will improve in the months ahead.

Services

Activity in the service sector was little changed. Contacts in the business services and personal services industries reported modest to moderate declines, while there was a slight increase in activity among firms in the leisure and hospitality sector, and education and healthcare activity largely held steady. Optimism among firms in the service sector continued to rise.

Tourism activity in New York City was quite strong at the end of the year, with the number of visitors matching 2019 levels for the first time since the pandemic. Hotel room rates hit record highs in December, though the high cost of hotel rooms detracted from spending on attractions, which have not recovered as quickly. However, Broadway attendance has been robust, with more shows open than in the 2019 season. Contacts expect 2025 to be a record year for tourism.

Real Estate and Construction

The housing market remained strong at the end of the year. New signed contracts surged in and around New York City, and demand remained solid in upstate New York. Sales upstate and in the New York City suburbs continued to be constrained by tight inventory, although inventory has improved slightly. With such low inventory, ongoing solid demand continues to push home prices higher, and bidding wars remained prevalent. Cash purchases continued to be an outsized share of sales, especially in Manhattan, as mortgage rates were still relatively high.

The rental market remained firm. Rents continued to rise in New York City, while they stabilized at a high level in upstate New York. Rising mortgage rates continued to push potential buyers to rent, although the very high end of the rental market softened somewhat.

Commercial real estate markets strengthened slightly, the first increase after a long stretch of decline. The New York City office market saw a pickup in demand, though the market remains bifurcated, with strength concentrated in renovated class A buildings in premier areas in midtown Manhattan. With tourism on the rise, retail markets in New York City have improved. Industrial markets were mixed, with Long Island's industrial market seeing growth, but there were declines in northern New Jersey's market.

Construction activity continued to decline, albeit at a more modest pace. Rising materials costs and high credit costs remained limiting factors. Still, construction industry contacts anticipated growth in business activity in the coming months after an extended period of pessimism.

Banking and Finance

Activity in the broad finance sector contracted slightly, though there were some signs of firming. Small-to-medium-sized banks in the region reported that demand declined for all loan types, including business loans, consumer loans, and commercial and residential mortgages, as well as refinances. For the first time in a while, credit standards eased, and delinquency rates improved. Deposit rates continued to decline. Contacts in the finance industry remained very optimistic about the outlook.

Community Perspectives

High prices of groceries and housing paired with rising debt service payments have stretched budgets for many consumers in the District. Credit counselors in the region have noted that younger community members are increasingly seeking assistance with managing debt. Challenges are more acute in lower-income parts of the District, with some areas of New York City facing unusually high delinquency rates on consumer debt.

For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy.

Last Update: January 15, 2025