A New York–Northern New Jersey regional business survey found materially higher business cost pressures in 2025, with aggregate costs rising to about 7% for service firms (up 1.7 ppt) and 8.5% for manufacturers (up 3.6 ppt). Largest input shocks were employee health insurance (+12.9% services, +14.2% manufacturers), utilities (+8.5% with ~15% of firms seeing ≥20% hikes, partly linked to AI data-center growth), business insurance (~7–7.5% with ~10% facing ≥20% hikes), and goods/materials (manufacturers +8%, services +5.5% with tariffs cited); wages rose ~3.4% and rent ~2%. Firms expect cost growth to moderate in 2026 (to ~5.4% services, 4.8% manufacturers), but the 2025 shock likely compresses margins, may constrain wage gains, and could influence pricing decisions and sector positioning.
Market structure: Rising employer health insurance (+13–14% y/y) and utility costs (+8.5% avg, 15%+ outliers) reallocate profits toward insurers, brokers, utilities and energy generators while compressing margins for manufacturers and service firms with thin pass‑through power. Data‑center driven electricity demand strengthens large regulated utilities and data‑center landlords (higher contracted demand, potential tariffed passthroughs), while tariffed inputs (steel, aluminum, auto parts) create near‑term margin pressure for import‑dependent manufacturers.
Risk assessment: Key tails include an escalation of tariff breadth (shock to manufactured-input prices), regional grid shortfalls forcing emergency price caps or brownouts, or a policy reaction to healthcare inflation (rate/benefit mandates). Time horizons vary: immediate (days–weeks) earnings volatility and insurance‑renewal repricings; short (3–6 months) contract resets and tariff updates; long (12+ months) structural capex for grids and captive insurance adoption. Watch utility price filings, tariff announcements, and median renewal increases >15% as acceleration triggers.
Trade implications: Favor insurance brokers/price‑makers (AON, MMC) and regulated utilities/energy producers (NEE, D, DUK) plus selected data‑center REITs (DLR, EQIX) that can index power passthroughs; underweight/short steel/commodity exposed manufacturers (X, CLF, NUE) and small‑cap service firms without pricing power. Protect portfolios with short‑duration bonds/TIPS (TIP) and buy 3–6 month options to capture dispersion around renewal windows.
Contrarian angles: Consensus assumes transitory moderation in 2026; risk is persistence if AI data‑center growth and repeated tariff rounds keep input inflation sticky—benefitting brokers/utilities longer than priced. Conversely, employers may shift to self‑insurance/captives if health premium inflation >12% persists, capping long‑term upside for public carriers; this nonlinearity argues for asymmetric option structures rather than outright long-only positions.
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moderately negative
Sentiment Score
-0.35
