New York Fed Survey Shows Service-Sector Activity Slumping as Price Pressures Intensify

Service businesses responding to the New York Fed’s regional survey reported a sharper decline in activity in October, even as more of them raised their selling prices. The regional business activity index fell 12 points to -20.7, its weakest reading since March, while the measure of prices received climbed to its highest level in four years.

Released Friday, October 16, the figures show weaker activity without a broad easing in costs or customer prices. The report also shows that firms have become more pessimistic about conditions over the next six months, although employment was steady during October.

The Business Leaders Survey covers service companies in New York State, northern New Jersey and southwestern Connecticut. Responses for the October report were collected from October 2 through October 9. Its diffusion indexes capture whether more firms report an increase or a decrease in a measure; they are not direct readings of economic growth, employment changes or the inflation rate.

More service firms report falling activity

October’s decline followed another weak month. The headline activity index was -8.7 in September, so the 12-point deterioration indicates that falling activity became substantially more widespread across the surveyed businesses. The latest reading is the lowest since March 2026, according to the New York Fed.

In the New York Fed’s full October report, 21.6% of respondents reported an improvement in activity, compared with 42.3% reporting a decline. Roughly 36% reported no change. In September, 26.8% had reported improvement and 35.5% had reported a decline, illustrating how the balance moved against the region’s service providers.

Assessments of the wider business climate remained deeply negative but did not materially deteriorate from September. It registered -35.0 in October, compared with -35.9 a month earlier. Slightly more than half of respondents, 50.5%, described the climate as unfavorable, while 15.4% called it favorable. That distinction matters because the climate index measures assessments of overall conditions, not the month-to-month change in business activity.

No single cause for the decline is identified in the release. Its respondents are drawn from nonmanufacturing businesses across the region, and the headline index is based on a direct question about activity rather than an average of other indicators. The release does not identify one cause for October’s slump, making it inappropriate to attribute the change solely to interest rates, labor costs or a particular industry.

Selling-price pressures reach their highest level since 2022

October’s price measures moved differently from the activity index, pointing to persistent pressure even as conditions weakened. The prices paid index rose to 70.0 from 69.0 in September, indicating that increases in firms’ input costs remained widespread. About 70.9% of respondents reported paying higher prices and fewer than 1% reported a decrease.

For prices charged to customers, the index tracking companies that raised versus lowered their own prices increased from 33.7 to 36.3. It was the highest reading in four years. Nearly 40% of businesses reported higher selling prices during October, while only 3.3% reported lower ones. The spread was wider than in September, when 38.6% reported higher prices and 4.9% reported reductions.

Those figures do not mean that businesses raised prices by 36.3% or that their costs increased by 70%. Each index is a diffusion measure derived from the share of firms reporting an increase minus the share reporting a decrease. The readings instead show how broadly price changes are being experienced, a useful distinction when comparing survey results with official consumer or producer inflation measures.

Even with those readings, the survey cannot tell how individual companies are managing their margins. The report establishes that many firms are seeing higher input prices and that a sizable share are charging customers more, but it does not quantify the size of either increase. It therefore cannot show whether selling-price changes fully offset higher operating costs. Service firms also reported continuing supply difficulties: the supply availability index improved from -15.8 to -13.3 but remained negative.

Capital investment provided another sign of restraint. The current capital spending index slipped two points to -4.2, with 17.5% of businesses increasing spending and 21.7% reducing it. That is a smaller shift than the headline activity decline, but it indicates that firms were not broadly expanding investment as conditions weakened.

Hiring steadies, but the six-month outlook turns negative

Despite weaker business activity, respondents did not report a comparably large net decline in employment. The employment index rose from -4.9 in September to zero in October as the shares reporting higher and lower staffing levels both stood at 19.7%. A zero index signals an even balance of hiring and job reductions across respondents, not an absence of job changes at individual businesses.

Wage increases remained more widespread than decreases. The wages index registered 28.2, a modest decline from 30.3 in September. Steady net employment alongside continued wage growth suggests that labor conditions were more stable than the activity figures alone might imply, although the survey does not measure aggregate employment or total wage spending.

Business leaders were less confident about what comes next. The index measuring expectations for activity six months ahead fell from 5.0 to -5.1, turning negative for the first time since December 2025. In October, 29.0% of firms expected an increase in activity over that period and 34.1% anticipated a decrease. The future business climate index also remained negative at -20.8.

Expectations for hiring were more constructive, with the six-month employment index at 9.5. But firms continued to anticipate higher prices: the forward-looking prices paid index was 68.1, while the corresponding selling-price index held at 38.9. Planned capital spending weakened as well, with its six-month index dropping from 1.1 to -2.9. These are reported expectations, not forecasts that the central bank has independently validated.

Manufacturing survey tells a different regional story

Factories in New York State reported a very different October in the New York Fed’s separate manufacturing survey, released a day earlier. Its Empire State general business conditions index climbed to 25.5 from 7.6 in September, the strongest reading since December 2021. Manufacturers also reported stronger new orders and shipments, with those indexes rising to 23.2 and 13.1, respectively.

These reports should not be treated as interchangeable indicators of the entire economy. The manufacturing survey focuses on producers across New York State; the service-sector survey spans a wider three-state area and asks slightly different questions. Their separate headline indexes therefore are not directly interchangeable, even though both are useful for tracking conditions reported by local businesses.

Price pressure was present on the manufacturing side too. The factory survey reported a prices paid index of 59.5 and a prices received index of 30.6 in October, both above zero despite the divergence in activity. That does not establish that the same forces are driving pricing decisions in factories and service firms, but it reinforces the distinction between the direction of business activity and the breadth of reported price increases.

Each month, the New York Fed surveys a recurring panel of about 150 service-sector executives, with roughly 100 responses in a typical month. The New York Fed’s published schedule lists November 17 for the next service-sector release, which will provide another reading on whether October’s activity decline and selling-price pressure persist.