March 4, 2026
Summary of Economic Activity
Economic activity in the Second District continued to decline modestly in early 2026 despite a small pickup in the manufacturing sector. On balance, employment remained flat, and wage growth was modest and steady. The pace of selling price increases remained moderate. Consumer spending grew slightly, though uncertainty prompted some consumers to pause major purchases and pull back on spending. Housing market activity was unchanged, constrained by limited inventory, which moved even lower across much of the District. Activity in the broad finance sector contracted slightly. Businesses expected conditions to improve somewhat in the coming months.
Labor Markets
On balance, employment remained flat. The retail and construction sectors reported a sharp decline in head counts, while employment fell modestly in the transportation, business services, health care, and leisure and hospitality sectors. Still, employment grew in the wholesale, information, and education sectors, and was steady in the manufacturing sector.
Demand for labor and hiring picked up slightly, although labor supply generally continued to exceed labor demand in what remained a low-hire, low-fire environment. Finance and specialized technology skills remain in high demand, but there has been some softening in the hiring of marketing and human resources professionals, where many candidates remain on the market. Despite weak hiring overall, contacts at larger firms with more stable operations continued to hire recent college graduates at steady levels, citing long-term employment needs and the belief that AI will increase productivity and business activity. There were no new significant layoffs noted this period.
Wage growth was steady and modest. The construction, wholesale, and leisure and hospitality sectors saw the strongest wage growth, while wage growth was more tempered among firms in retail, information, finance, and personal services. One service sector firm reported that minimum wage increases in New York State had compressed wages and amplified competition for lower-skilled workers near the minimum who now have more alternatives. Contacts anticipated continued modest wage growth in the coming months.
Prices
On balance, the pace of selling price increases remained moderate. Input price increases remained elevated, with tariffs a major driver of cost pressures. A food ingredient company noted that tariff-driven increases in input costs were being passed through the supply chain to consumers, with some food manufacturers strategically reducing product quantities per package while keeping package prices constant. One firm reported opening a credit line to help with cash flow due to elevated costs, even as they planned to pass on tariff-induced cost increases to their customers. A steel manufacturer noted that the cost and selling price of steel were rising. Contacts across many industries reported sharp increases in the cost of employee health insurance and utilities, which in some cases was challenging the sustainability of their businesses. For the first time in a year, service firms anticipated some easing in selling price increases in the coming months, though manufacturers expected an elevated pace of price increases to continue.
Consumer Spending
Consumer spending grew slightly during the reporting period, though economic uncertainty prompted some consumers to pause major purchases and pull back on spending. In addition, harsh winter weather kept many consumers at home. Smaller retailers reported a sharp decline in activity. However, spending at food and beverage stores ticked up somewhat. A major retailer reported that sales revenues surpassed last year's levels but were driven by elevated selling prices due to the cost pass-through from tariffs; sales gains remained concentrated among higher-income consumers, who nonetheless remained price-conscious and shopped across multiple outlets to find value. Auto dealers in upstate New York reported both new and used car sales continued to decline, marking an exceptionally slow start to the year, with affordability, uncertainty, and the lack of manufacturer incentives contributing to tepid sales. Still, high volume brands with more affordable offerings performed relatively well.
Manufacturing and Distribution
Manufacturing activity rose modestly during the early part of the year, with new orders and shipments edging up. Supply chain disruptions constrained some manufacturers' operations, particularly as tariffs continued to evolve amid geopolitical uncertainty. Overall, though, supply availability held steady. Activity continued to decline among wholesale and distribution firms. Still, a shipping industry contact noted that import volumes continued to grow despite pessimistic business sentiment, supported by steady demand and easing freight rates. Manufacturers remained fairly optimistic about the outlook.
Services
Activity in the service sector contracted moderately. The leisure and hospitality sector saw a particularly sharp decline in activity, with some contacts reporting that harsh winter weather was a factor. Activity in the business services sector also declined significantly. A research firm noted that instability in government support of scientific research had a negative impact on their business. Contacts in education, health care, and personal services reported more moderate declines. However, firms in the information sector saw some growth after a long period of contraction. Conditions were particularly challenging for smaller firms, as larger firms have navigated the uncertain business environment better and were more able to realize productivity gains from AI.
New York City's tourism sector remained resilient, with the hotel sector performing exceptionally well and hotel rates continuing to rise. Luxury hotel bookings rose substantially, though the midscale and economy segments were down slightly. Ticket sales at Broadway theaters rebounded after plateauing in the fall and are now running ahead of last year. Attendance at attractions lagged slightly, particularly for outdoor-dependent attractions, like the Statue of Liberty, where cold weather muted activity.
Real Estate and Construction
Housing market activity remained flat, constrained by limited inventory, which declined further from already low levels across much of the District. Home prices continued to rise. Bidding wars remained prevalent in New York City's suburbs and upstate New York, where snow and frigid temperatures kept some homeowners from listing properties and put some searches on hold. Still, cash transactions and deals without contingencies remained fairly common.
The rental market remained tight in and around New York City, with vacancy rates below the long-term average for this time of year. Average rents reached an all-time high.
Commercial real estate markets strengthened slightly. New York City's office market continued to improve, with declining vacancy rates and rising rents, though the demand for lower-quality office space remained tepid and rents in this segment slumped. Although leasing activity sagged in midtown Manhattan, midtown south and downtown saw particularly strong demand compared to last year. Construction activity continued to decline across the District, albeit at a slightly slower pace than last period, despite reports of inclement weather disrupting operations.
Banking and Finance
Activity in the broad finance sector contracted slightly. Small to medium-sized banks in the region reported that demand for consumer loans and residential mortgages declined since the previous period, which one banker noted was typical for the winter season. Demand for commercial mortgages and refinances edged up slightly. Contacts reported that credit standards were mostly unchanged, though one contact reported tighter credit standards for business loans and commercial mortgages. Deposit rates continued to move lower. Delinquency rates were up slightly.
Community Perspectives
Housing affordability continued to strain low- and moderate-income households, with tight inventory and persistently steep increases in home prices and rental costs. Access to public housing remained severely constrained, with families relying on vouchers competing in tight private markets with limited available properties. Contacts reported that arrears were increasing. New affordable housing projects remained constrained by high per-unit development costs, rising insurance and interest expenses, long timelines, and complex funding.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy.