Economic Data and Growth

Building permits increased 4.3% in December but fell 2.2% over the year. Permits for single-family homes in December decreased 1.7% and 10.9% over the year. On the other hand, permits for buildings with five or more units surged 18.1% from November and 18.7% over the year.

In December, housing starts rose 6.2% from November but declined 7.3% over the year. Starts for single-family homes moved up 4.1% from November but dropped 9.0% over the year. Meanwhile, starts for buildings with five or more units jumped 10.1% over the month but fell 1.0% over the year.

Housing completions increased 2.3% over the month but ticked down 0.1% over the year. Single-family home completions edged down 0.1% from November but surged 10.2% from December 2024. At the same time, completions for buildings with five or more units rose 7.1% over the month but plummeted 15.9% from one year ago.

Manufacturing activity in New York state increased but at a slightly slower pace in February, with the headline business conditions index edging down 0.6 points to 7.1. The new orders index similarly ticked down but remained positive, decreasing 0.8 points to 5.8, while the shipments index plummeted 17.3 points to -1.0. Unfilled orders turned positive, surging 17.3 points to 9.1, while inventories rose 9.2 points to 7.1, indicating business inventories are growing again. Delivery times lengthened, and supply availability improved but remained negative, increasing 3.1 points to -1.0.

Employment increased in February, with the index for the number of employees rising 13.0 points to 4.0. At the same time, the average employee workweek index grew to 2.1 from -5.4, signaling an increase in hours worked from January. The prices paid index moved up 6.3 points to 49.1, while the prices received index rose 7.8 points to 22.2, reflecting a faster pace of increase in both prices received and prices paid.

In February, firms’ optimism regarding the future remained high, with the future business activity index advancing 4.4 points to 34.7. In the next six months, new orders are expected to rise and at a slightly faster pace compared to the prior month at 34.9. The future employment index jumped 11.2 points to 26.1, suggesting an anticipated faster pace of employment growth over the next six months. Meanwhile, input and selling price expectations are forecasted to increase at a faster pace, increasing from 52.6 to 57.6 and from 36.5 to 40.3, respectively. Furthermore, capital spending plans strengthened from January, up from 10.3 to 18.2.

In February, Philadelphia’s regional manufacturing activity expanded for the second consecutive month to its highest level since September, with the index for general business activity advancing from 12.6 to 16.3. This month, 31.0% of firms reported increases in activity, while 14.7% of firms noted decreases. The indexes for new orders and shipments fell, moving from 14.4 to 11.7 and from 9.5 to 0.3, respectively. Meanwhile, the employment index turned negative for the first time since June, falling 11.0 points, as the average employee workweek plunged 20.7 points to -11.6.

The prices paid index declined from 46.9 to 38.9, its lowest reading since January 2025, while the prices received index fell from 27.8 to 16.7, its lowest reading since December 2024. As has been the case for many months, the prices received index remained lower than the prices paid index, indicating that manufacturers have been absorbing a portion of higher costs paid.

Looking ahead, indicators showing expectations for future growth grew after two months of declines. After falling 12.6 points in January, expectations for future business activity soared 17.3 points to 42.8 in February. The rise came from an increase in the proportion of firms expecting an increase in activity (52.0%). At the same time, the number of firms anticipating a decrease in activity (9.2%) was virtually unchanged in February. The future new orders index rose from 32.9 to 54.1, its highest reading since November 2024, and the future shipments index moved up from 40.8 to 47.4. On the other hand, the capital expenditures index fell from 30.3 to 14.4, its lowest reading since September. The future prices paid and prices received indexes declined from 66.6 to 54.1 and from 61.8 to 50.1, respectively. Additionally, the index for future employment stepped down from 28.8 to 14.9.

In February, firms were asked about changes in core customer price sensitivity and anticipated cost changes. Of those responses, 30.8% of firms view core customers as more price sensitive since last quarter. Meanwhile, 39.1% of firms expect price changes in their industry’s costs, while 60.9% do not. When asked how they anticipate competitors to respond, 77.8% expect them to raise prices in the near term, while none believe they will lower prices. When asked, 58.3% of firms said they have experienced a net negative impact from tariffs over the past year, but 16.7% have seen a net positive impact. Looking forward, 46.2% expect a net negative impact over the next year from tariffs, while 15.4% predict a net positive impact.

The S&P Global Flash U.S. Manufacturing PMI fell from 52.4 to 51.2 in February, a seven-month low, although it remained positive. This continued the trend of seven consecutive months of growth, but marked the weakest advancement seen during that period. Factory production and new order growth both decreased in February, with production exhibiting its weakest growth since July. Meanwhile, export orders declined for the sixth consecutive month, which was due partially to adverse weather.

Inventories decreased in February as the stock of finished goods fell for the first time since July and at the sharpest rate in 13 months. At the same time, supplier delivery times lengthened to the greatest extent since October 2022, with respondents linking the increase to supplier delays, shortages and poor weather. Manufacturers’ input cost inflation ticked higher and continued to remain high by historical norms. Meanwhile, selling price inflation moderated to a 14-month low, resulting from increasing discounts to boost sales. Overall, price increases slowed for manufacturers but accelerated for the service industry.

Overall business activity declined to a 10-month low, edging down from 53.0 in January to 52.3 in February. In addition to manufacturing growth slowing, the growth rate in the services sector also moderated, falling to a 10-month low. Overall, new orders growth cooled as companies cited high prices hurting sales. Employment rose only slightly due to sluggish sales and concerns over rising costs.

On the other hand, optimism about future business conditions jumped in February to a 13-month high. The optimism reflected expectations for improving economic conditions and a boost after frigid weather lets up. In addition, companies expressed hope for greater policy support, including lower interest rates and government fiscal stimulus.

Industrial production increased 0.7% in January, while manufacturing output rose 0.6% after staying the same in December. At 97.5% of its 2017 average, manufacturing production advanced 2.4% from January 2025. Capacity utilization for manufacturing was 75.6%, up 0.4 percentage points from December and 1.1% over the past year. Capacity utilization remained 2.6 percentage points below its long-term average from 1972 to 2025.

In January, all major market groups posted gains. Consumer goods production grew 0.7%, while business equipment output increased 0.9%. The gain in production of consumer durables (up 0.5%) was led by home electronics’ output rising 2.8%. Meanwhile, the index for consumer nondurables stepped up 0.7%, experiencing gains in all but two of its categories. Among business equipment, the 1.2% gain in the index for industrial or other equipment led the increase. At the same time, the index for materials improved 0.6%, while the index for construction supplies moved up 0.5%, and the index for business supplies rose 1.1% in January.

Durable goods manufacturing advanced 0.8% in January and 3.7% from the year prior. Monthly growth was greatest for nonmetallic mineral products (up 2.2%), while aerospace and miscellaneous transportation equipment posted the only decline (down 0.2%), although it was still up 9.8% from January 2025. Meanwhile, led by a 1.3% gain in plastics and rubber products output, nondurable manufacturing increased 0.4% in January and 1.3% from January 2025.

Real GDP increased at an annual rate of 1.4% in the fourth quarter of 2025, down from a 4.4% rise in the third quarter and below consensus expectations. The increase in GDP during the fourth quarter mostly reflected increases in consumer spending and investment, which were partially offset by reductions in government spending and exports. In 2025, real GDP grew at an annual rate of 2.2%, down from 2.8% in 2024. The increase in GDP in 2025 mostly reflected a 2.7% rise in consumer spending, which was partially offset by a reduction in nondefense, federal government spending, which fell 4.2%.

Consumer spending grew at an annual rate of 2.4%, down from a 3.5% increase in the third quarter, with spending on services (up 3.4%) contributing to the gain, while spending on goods declined (down 0.1%). Consumer spending on nondurable goods ticked up 0.4%, but spending on durable goods fell 0.9% after rising 1.6% in the third quarter. The rise in nondurable goods consumer spending was driven by clothing and footwear and other nondurable goods, with declines in other nondurable goods categories. Meanwhile, the decline in consumer spending on durable goods was driven by motor vehicles and parts. Within services, spending increases were relatively widespread, with health care being the largest contributor to the gain.

Investment grew 2.6% at an annual rate in the fourth quarter, after ticking up 0.8% in the third quarter. The improvement was driven by a 7.4% surge in intellectual property products investment, up from 5.6% in the third quarter. Meanwhile, business spending on structures declined 2.4%. Exports dropped 0.9% in the fourth quarter, with the decline entirely concentrated in goods exports (down 1.8%). At the same time, imports fell 1.3% in the fourth quarter, with the decline also entirely concentrated in goods (down 2.8%). The plummet in federal government spending (down 16.6%) was driven by the extended government shutdown in the fourth quarter. Meanwhile, state and local government spending increased 2.4% in the fourth quarter, up from the 2.0% rise in the prior quarter.

Existing home sales fell 8.4% in January, the largest monthly decline in nearly four years, and 4.4% over the year. Housing inventory moved down to 1.22 million units, reflecting a 0.8% drop from December but a 3.4% increase from last year. The median existing home price was $396,800, up 0.9% from last year. The Northeast, South, Midwest and West all posted monthly decreases in existing home sales in January.

Single-family home sales fell 9.0% from December and 4.3% from January 2025, with the median price increasing 0.6% from last year to $400,300. Condo and co-op sales decreased 2.6% over the month and 5.0% over the year to 380,000 units in January. Meanwhile, the median price for condos and co-ops rose 3.8% from the prior year to $364,600.

Homes were typically on the market for 46 days in January, up from 39 days in December and 41 days in January 2025. First-time buyers made up 31% of sales in January, up from 29% in December and 28% in January 2025.

The NFIB Small Business Optimism Index edged down 0.2 points to 99.3 in January, remaining slightly above the 52-year average of 98. January’s increase was due primarily to the rise in those expecting better real sales volume. Of the 10 components included in the index, three increased and seven decreased. Meanwhile, the Uncertainty Index jumped 7 points to 91, remaining well above the 51-year average (68) and above the average since 2016 (80).

Small business owners again cited taxes as their top concern, with 18% reporting it as the most important problem, down 2 points from December. The share of business owners reporting labor quality as their top problem fell 3 points from December to 16%, with 31% struggling to fill open jobs and 50% reporting hiring or trying to hire in January. Meanwhile, the cost or availability of insurance was third on the list of concerns, with 13% reporting it as a top problem, up 4 points from the prior month and the highest level since December 2018.

A net 32% of small business owners reported raising compensation, up 1 point in January after rising 5 points in December. Meanwhile, 22% of business owners plan to raise compensation in the next three months, down 2 points from December. Pressure on profitability strengthened in January, with positive profit trends decreasing 1 point from December to a net negative 21%. Among owners reporting lower profits, 34% blamed weaker sales, 14% mentioned usual seasonal changes and 10% noted labor costs. Meanwhile, 3% reported their last loan was harder to get than previous attempts, down 2 points from December, and a net negative 6% of owners cited paying a higher interest rate on their most recent loan, down 3 points from the prior month.

The outlook for general business conditions fell 3 points to 21%. Furthermore, expectations for better business conditions are 26 points below the same month a year ago. On the other hand, 15% reported that it is a good time to expand their business, up 2 points from December but a rather weak reading compared to times of economic expansion. Despite overall growth running hot, small business owners feel like economic conditions are more moderated, with investment-led growth not hitting all sectors equally.

Nonfarm payroll employment rose by 130,000 in January, coming in above expectations. At the same time, the unemployment rate edged down 0.1 percentage point from December to 4.3% in January, while the labor force participation rate ticked up 0.1 percentage point to 62.5%. In addition, the establishment employment survey was revised as a result of the Bureau of Labor Statistics’ annual benchmarking process and the updating of seasonal adjustment factors. As a result of the annual benchmark revision, the employment levels from April 2024 to March 2025 were revised downward by 898,000 nonfarm jobs and 98,000 manufacturing jobs.

Manufacturing employment increased by 5,000 in January after 13 consecutive months of declines. On the other hand, the collective job losses in November and December of 10,000 were revised downward by 8,000 jobs to a decrease of 18,000 jobs. Manufacturing employment is down 82,000 over the year. Durable goods manufacturing employment rose by 9,000 in January, while nondurable goods employment fell by 4,000. The most significant gain in manufacturing in January occurred in transportation equipment manufacturing, which added 4,800 jobs over the month. Meanwhile, the most significant losses occurred in apparel manufacturing and chemical manufacturing, which shed 1,800 jobs each over the month.

The employment-population ratio inched up 0.1 percentage point from December to 59.8% in January but is down 0.3 percentage points from a year ago. Employed persons who are part-time workers for economic reasons declined by 453,000 from December to 4.89 million in January but are up from 4.48 million in January 2025. Native-born employment is down 1,195,000 from December but up 840,000 over the year. Meanwhile, foreign-born employment is up 565,000 over the month but down 97,000 over the year. At the same time, the native-born unemployment rate is up 0.4 percentage points over the year to 4.7% in January, while the foreign-born unemployment rate is down 0.1 percentage point to 4.5%.

Average hourly earnings for all private nonfarm payroll employees rose 0.4%, or 15 cents, reaching $37.17. Over the past year, earnings have grown 3.7%. The average workweek for all employees edged up 0.1 hour to 34.3 hours and by the same to 40.1 hours for manufacturing employees.

In January, consumer prices increased 0.2% from December and 2.4% over the year, down from the 2.7% annual rise in December and less than the anticipated 2.5% hike. Core CPI, which excludes more volatile energy and food prices, rose 0.3% from December and 2.5% over the year, down from the 2.6% 12-month increase in December and the slowest pace since March 2021.

Energy costs edged down 0.1% over the year in January, after rising 2.3% year-over-year in December. Within the energy index, gasoline prices declined 7.5% over the year, while fuel oil prices fell 4.2%. Meanwhile, electricity prices increased 6.3% year-over-year, and natural gas prices surged 9.8%.

In January, food prices grew 2.9% over the year, after increasing 3.1% year-over-year in December, while prices for food at home advanced 2.1%. Meanwhile, prices for food away from home climbed 4.0% from January 2025, down from the 4.1% year-over-year increase in December. Of the different food groups, beef and veal and coffee continue to rise at the fastest pace, soaring 15.0% and 18.3% over the year, respectively.

The shelter index grew 0.2% from December and 3.0% over the year, the greatest factor in the all-items monthly increase but down from the 3.2% annual gain in December. Meanwhile, prices for used cars and trucks decreased 1.8% over the month and 2.0% over the year, while new vehicle prices inched up 0.1% over the month and 0.4% from January 2025. Relatedly, prices for motor vehicle maintenance and repair jumped 4.9% year-over-year.

Although the headline inflation rate is still above the Federal Reserve’s target of 2.0%, it has moderated back closer to 2025 lows. Federal Reserve officials held their interest rate target steady at their January meeting, and markets anticipate that the Federal Open Market Committee will keep its interest rate target unchanged again at next month’s meeting. Risks to the Federal Reserve’s employment and inflation mandates remain elevated but appear to be easing.