Small businesses in New York, New Jersey, and Connecticut reported severe declines in both revenue and employment growth last year — and they are deeply pessimistic about 2026. Small businesses in the rest of the country reported stable revenues and steady employment. Same economy. Same interest rates. Strikingly different outcomes.
The data comes from the 2025 Small Business Credit Survey, a collaboration of all 12 Federal Reserve Banks. Researchers at the New York Fed published their regional analysis on June 2, breaking down results for the Second District — covering New York, New Jersey, and Connecticut — against national benchmarks. The divergence is sharp.
Nationally, revenue and employment growth held steady between the 2024 and 2025 surveys. Firms were slightly more likely to report revenue decreases than increases, but the overall trend was flat. In the Second District, the picture was markedly worse: businesses reported what the Fed researchers describe as severe declines in both employment and revenue. And their expectations for 2026 have dropped further.
The national survey found that nearly half of all small employer firms now source at least some inputs from outside the United States. A large majority of those firms reported that international input costs increased from 2024 to 2025. For businesses already running thin margins, that pricing pressure compounds every other challenge.
One data point stood out from the national report: just under half of all small employer firms are now using artificial intelligence in some capacity. The most common uses are writing and marketing, individual productivity, and planning or analysis. That adoption rate among firms with 1 to 499 employees is higher than many industry estimates had projected.
The wider picture
The Fed's data matters because it strips away anecdotes. This is not one founder's story. It is a structured survey across the entire country, conducted by the institutions that set monetary policy. And the message is that geography has become a meaningful variable in small business performance — more so than many operators realize.
The Federal Open Market Committee held rates at 3.5 to 3.75 percent at its June meeting — new Chairman Kevin Warsh's first — while removing language that previously signaled a lean toward future cuts. For small businesses already squeezed on revenue, steady rates offer no relief. For those in high-cost regions like the tri-state area, the combination of rising input prices, stagnant revenues, and persistent borrowing costs creates a compounding problem.
What to take from this
Location is a business variable, not just a personal one. The same type of business, in the same economy, is producing materially different outcomes depending on where it operates. Founders and business owners in high-cost regions should model their break-even on local conditions, not national averages.
Pessimism is a signal, not just a mood. When the Federal Reserve's own survey reports that regional business owners are deeply pessimistic, that sentiment will show up in hiring decisions, investment delays, and supplier relationships. If you operate in or sell to the tri-state region, factor that caution into your planning.
AI adoption among small businesses is accelerating faster than expected. Nearly half of employer firms using AI tools is a meaningful threshold. Businesses not yet exploring these tools are falling behind a benchmark that the majority of their competitors are approaching.
The Fed published two very different stories in the same dataset. Which one describes your business depends more on your zip code than most owners want to admit.