Federal Reserve Bank of Atlanta
Summary of Economic Activity
The economy of the Sixth District grew at a modest to moderate pace over the reporting period. Employment levels remained flat to slightly down, with most businesses keeping head counts level. Wages grew modestly. Prices and input costs were flat to up somewhat. However, elevated prices for groceries, energy, and health care continued to put pressure on household finances for lower- to moderate-income consumers, and nonprofit agencies saw increased requests for food and rental assistance. Retailers reported modest to moderate sales growth. Tourism activity rose moderately. Demand for housing improved as home prices moderated and interest rates declined. Transportation activity was flat to slightly down, while manufacturing was slightly up. Loan growth was modest. Energy activity grew at a moderate pace, on balance.
Labor Markets
District employment levels remained flat to slightly down over the reporting period. Most firms reported keeping staffing levels flat or passively reducing head count through attrition. Pockets of hiring strength were seen in health care (primarily medical roles) and at firms involved in data center construction. The limited reports of layoffs were attributed to slowing demand and rising costs. Most firms expect to maintain staffing levels throughout 2026, and several cited plans to implement AI as a productivity enhancement, not head count replacement, at least in the medium term.
Wage growth remained modest, on balance. However, in certain sectors, such as health care, wages continued to grow at a moderate to strong pace.
Prices
Prices were flat to slightly up as some nonlabor costs were noted as having stabilized since the beginning of the year. Contacts reported that waning uncertainty around tariff policies and moderating wage increases helped with budget planning, though tariff concerns persisted in industries like construction and transportation. Insurance remained a key cost driver across sectors, prompting a few firms to self-insure to avoid rising premiums. Pricing power was limited amid growing consumer price sensitivity, and some wholesalers noted they were unable to push increases to retailers as they leaned into promotional pricing to drive volume.
Community Perspectives
Concern about the stability of the labor market was pervasive among both employed workers and job seekers. While some individuals expressed confidence that they would be able to find a new job, if necessary, most indicated that the job would likely represent a trade down in terms of wages, schedule, and/or benefits. Workers, jobseekers, and community agencies repeatedly emphasized the negative impact of price pressures on household financial positions, especially the costs of groceries, energy, and health care. Individuals reported employing a variety of strategies for navigating tight household budgets, including selling clothes online, scrapping metal, tapping savings, utilizing buy now/pay later offerings, eliminating dining out, using coupons, and buying in bulk. Social service providers indicated that requests for food and rental assistance increased. Several of these same organizations noted that the combination of rising living costs and a cooling labor market have led many families to deprioritize pursuing pathways to upward mobility (such as investing in continuing education) in favor of meeting immediate needs.
Consumer Spending
Retailers reported modest to moderate sales growth over the reporting period. Discount stores noted steady to improving sales, supported by price-conscious consumers across various income levels. Still, higher-end retail sales remained resilient. Restaurants saw strong sales, especially upscale establishments and quick service locations. Auto dealerships faced ongoing softening demand for new vehicles, though used car sales were healthy as consumers reflected trade-down behavior.
Tourism activity grew at a moderate pace since the previous report. Although some travelers canceled or postponed plans because of Winter Storm Fern, others extended their stays for the same reason. Leisure travel among seasonal visitors to the Southeast remained strong, as many were drawn to new attractions, events, and cruises. Business travel was also a bright spot, with further growth anticipated as more companies negotiated contracts for events. Group travel held steady, with solid bookings through the second quarter.
Construction and Real Estate
Housing demand increased modestly amid declining mortgage rates and moderating home price appreciation. Although this led to a slight improvement in affordability, homeownership costs remained elevated. On balance, home inventory levels fell as both home sales and delistings increased at a modest pace across the District. Home builders pulled back on housing starts and utilized incentives to shrink speculative inventory. Some builders reported that home buyers were shopping around for the best deals and often presented "low-ball" offers. This is especially true in the entry-level segment.
Commercial real estate conditions slowed a bit, as most sectors experienced a pullback in the delivery of new space alongside a contraction in demand. Class A accounted for most new office construction, with activity driven by a desire for smaller spaces. Demand for retail space was also concentrated on smaller footprints, and interest in big-box retail declined. Demand for warehousing ticked up, though vacancy rates remained elevated. High vacancy rates continued to beleaguer the multifamily sector. Office, industrial, and hotel segments saw a slight bump in rent levels, driving a small boost in net operating income.
Transportation
Transportation activity remained flat to slightly down. Railroads reported that total traffic improved through the first three weeks of January, but winter weather caused significant delays in shipments in the final week of the month. Trucking contacts saw a dip in volumes as compared with year-earlier levels when activity was buoyed by firms' stockpiling of pre-tariff inventories. However, truckloads of data center-related infrastructure and equipment were strong. District ports saw further softening in container traffic and slowing growth in auto shipments, but modest increases in bulk and break-bulk volumes. Most transportation contacts expect flat to slightly higher growth in the first half of 2026.
Manufacturing
Manufacturing activity was slightly up over the reporting period. Furniture producers noted significant declines in demand for moderately priced furnishings, but strong demand for high-end furniture. Lighting manufacturers experienced volume declines but increased revenues resulting from higher prices. Commercial flooring producers reported low single-digit growth driven by corporate renovations and the "race back to [the] office" trend. Health and wellness product manufacturers projected high double-digit growth in 2026, despite weakness among lower-income customers. However, most manufacturing contacts anticipate flat to slightly positive growth in 2026, with potential upsides for housing-related manufacturers if mortgage rates continue to decline.
Banking and Finance
Loan growth in the District was modest since the previous report. Commercial lending led performance, particularly in the industrial space as firms focused on strengthening supply chain resilience. Some banks described an environment of "reluctant investment" driven by uncertainty, but outlooks were optimistic because of the potential for deregulation and lower borrowing rates. Consumers and small businesses increasingly drew on existing lines of credit. Delinquency levels remained low, though they ticked up marginally in aggregate.
Energy
Energy demand grew moderately, with a few segments reporting softening and others experiencing robust growth. Crude oil and liquefied natural gas (LNG) production remained strong, with supply exceeding demand. Refining contacts reported high utilization, although they expect that to moderate as maintenance activities kick in with warmer weather. Industrial contractors noted strong activity driven by LNG projects, pipe fabrication, and data center power infrastructure. Utility contacts continued to report rising electricity demand, driven by continued in-migration to the region and growth in data center energy usage.
For more information about District economic conditions visit: https://www.atlantafed.org/what-we-study/regional-economy.