Federal Reserve Bank of Atlanta
Summary of Economic Activity
Economic activity in the Sixth District grew modestly. Labor markets eased further, and wage pressures moderated. Many nonlabor cost increases stabilized, while the cost of others, like food and insurance, continued to rise. Consumer spending was steady, but sales of discretionary items slowed. Leisure and business travel remained healthy. District housing inventories grew, and affordability improved somewhat. Commercial real estate activity slowed. Transportation demand remained mixed. Manufacturing grew at a modest pace. Lending was flat, on balance. Activity in the energy sector increased somewhat since the previous report.
Labor Markets
On balance, the pace of hiring grew modestly over the reporting period. A few firms slowed hiring in response to weaker demand and were downsizing through attrition. Most contacts reported that it was easier to fill open roles but there were pockets of shortages noted across the region, varying widely by location and industry. Such shortages had firms focused on workforce training and strategically building pipelines for talent; this was especially true among businesses facing a wave of retirements. Current or expected labor shortages continued to drive the search for efficiencies and cost savings. Most firms reported investing in automation, and several said they were exploring the use of AI to drive efficiencies and free up workers for other tasks.
Most contacts indicated that wage pressures continued to ease, and wage growth was more closely aligned with historical averages.
Prices
Most nonlabor cost increases stabilized, though the stabilization was uneven across inputs. Transportation costs, along with some commodities like lumber and steel, saw prices hold or even decrease. Construction delays, however, added to the final cost of projects. Food prices continued to rise, and increases in insurance premiums were notable. Pricing power was characterized as "lumpy," with some firms maintaining the ability to pass through costs while others, particularly retailers and restaurants, struggled to preserve margins. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit cost growth increased in March to 2.8 percent, on average, from 2.6 percent in February; firms' year-ahead inflation expectations for unit cost growth were relatively unchanged in March at 2.4 percent, on average, from 2.3 percent in February.
Consumer Spending and Tourism
Retailers continued to report a normalization of consumer demand as compared with pandemic levels; "flat is the growth in 2024 for retail." Contacts noted that consumer demand was generally healthy, but discretionary purchases declined, and sales reflected ongoing price sensitivity by shoppers. Auto dealerships described activity as stabilizing—inventory levels met demand and manufacturers offered incentives to boost sales.
Tourism and hospitality contacts reported that strong spring break travel was in line with expectations. Appetites for cruising increased, with several Florida ports reporting strong passenger counts. Business travel continued to improve. Industry contacts remain optimistic about activity for the balance of the year.
Construction and Real Estate
Though home ownership affordability improved amid lower mortgage rates, home price appreciation increased or stabilized in most markets, consistent with national trends. Rising insurance premiums and HOA fees in coastal markets remained a challenge for homeowners on fixed incomes. While still below historic norms, rising existing home inventory, new subdivision developments, and an increase in spec-home availability in the new home market led to higher inventory levels. Housing inventories in southwest Florida increased at a sharper rate than the rest of the District due to weaker demand and the lingering effects of Hurricane Ian.
Commercial real estate (CRE) conditions were mixed. Office and multifamily sectors cooled as occupancies declined. Oversupply in the multifamily and industrial sectors weighed on market conditions, as sizable amounts of new construction were delivered. Firms reported that imprecise CRE appraisals were leading to valuation accuracy challenges. Like the rest of the nation, Sixth District markets will contend with rising CRE loan maturities in 2024.
Transportation
Transportation activity remained mixed. Railroads reported significant year-over-year increases in intermodal shipments and overall traffic. Third party logistics contacts noted that both demand and shipping rates appeared to have bottomed out following what was characterized as an 18-month freight recession. Cargo volumes at District ports were generally below 2023 levels and are expected to slow further as freight normalizes down from inflated levels in 2022. Freight forwarding companies reported declines in volumes, revenue, and profits as customers worked through "bloated inventories." Some transportation contacts expect conditions to improve in the second half of 2024.
Manufacturing
Manufacturing activity grew modestly since the previous report. Most firms reported stable to slightly growing demand, with some optimism for stronger growth later in the year. Manufacturers of products tied to government and infrastructure projects saw higher demand. However, a few producers of consumer goods reported some softening. The Manufacturing Sector Report of the Atlanta Fed's Business Inflation Expectations Survey showed that for the majority of respondents, demand remained at or below "normal" levels but found that sales growth is mostly positive.
Banking and Finance
Lending at District financial institutions remained relatively flat amid continued contraction in most consumer loan segments. One notable exception was home equity lines of credit, which have steadily increased in originations and utilization. Commercial real estate loan originations, including multifamily, experienced minor upticks since the previous report. The allowance for loan and lease losses continued its slow but steady increase as economic uncertainty drove banks to adjust reserves. Cash balances at financial institutions also increased slightly, consistent with broader industry trends. Large time deposits experienced continued growth but may be showing early signs of flattening as institutions start to lock-in anticipated interest rate cuts by the Federal Reserve. Borrowings declined over the period as banks paid down this more expensive source of funding.
Energy
Most energy contacts described an uptick in activity since the previous report, when weather-induced outages had reduced oil and gas production, refining, and chemical manufacturing capacity. Since then, oil and gas production climbed, a trend that is expected to continue over the medium term as global demand grows. Additionally, refiners reported very strong demand and utilization rates, while chemical manufacturing contacts noted flat to steady demand. Utilities contacts noted continued investment of billions of dollars over the next several years, largely attributed to power infrastructure for emissions reduction, computing capacity, and data center projects across the southeast.
Agriculture
Agricultural conditions showed modest improvement in recent weeks. The cattle market saw continued resilience as limited supply kept prices high. Record inventories of milk depressed prices, but demand for dairy was strong and growing. Some increase in demand for poultry led to more optimism in the market, but many producers struggled as significant export restrictions remained in place. There was a modest increase in demand for lumber, and expectations are for steady sales going forward. Florida growers reported high demand for citrus, but some softness in the row crop market.
For more information about District economic conditions visit: https://www.atlantafed.org/economy-matters/regional-economics.