Newcastle lost the first-leg of their semi 2-0 at their St James Park home, with Antoine Semenyo and Rayan Cherki scoring for the visitors.
Afterwards, Howe stated: "It's a body blow (conceding last minute to Cheri) but not fatal at the moment. We're still in there fighting. I think maybe a bit of naivety with a minute to go on the clock, that we're still trying to chase a goal. In that moment, we needed to defend after we got our structure wrong from that position, and we got punished.
"I think the lads gave everything today under difficult circumstances after the extra time on Saturday, and there was a bit of fatigue in our performance, but I can't fault the players."
On Yoane Wissa missing a chance early on, Howe continued: "Looking back with hindsight, you'd say that's potentially a big turning point. We wanted to get the crowd fully into the match. Manchester City want to do the opposite by retaining the ball and calm the crowd down, also it's always that dynamic by the two teams.
"Yoane's a top player. He's still finding his very best level after a long time injured. Maybe in a couple more weeks that might've gone in.
"All I can look at is the effort levels of the players, and I think considering Saturday's efforts that we gave against Bournemouth, that was a great effort from the guys against the worst side that could expose that fatigue."