Federal Reserve Bank of Atlanta
Summary of Economic Activity
Economic activity in the Sixth District grew modestly from mid-February through March. Employment levels remained flat, and wages continued to grow at a modest average pace of two to four percent. Prices and input costs also rose modestly, on average, and firms' pricing power varied. Retail sales increased, and travel and tourism expanded slowly. Demand for residential real estate increased, but housing starts continued to fall. Commercial real estate activity rose moderately except in retail, where vacancies rose a bit. Transportation and manufacturing activity grew modestly. Lending increased across most portfolios, though small business lending declined. Energy demand was robust, but agriculture activity was flat. Most firms noted that if the conflict in the Middle East becomes protracted, they will need to revisit plans for pricing and investment.
Labor Markets
District employment levels were largely flat over the reporting period. Most firms were holding head count steady or hiring only for replacement. Turnover remained low, and there were very few reports of layoffs. However, firms across several sectors, such as health care and transit, noted plans to hire for growth this year. Several contacts reported that AI is expected to or has already replaced head count, while many others said they were exploring it primarily as a tool to improve productivity.
Overall wage growth remained modest, with most firms citing a return to pre-pandemic wage increases of two to four percent. However, competition-driven wage pressure persisted for specific roles within health care, warehousing, and skilled trades.
Prices
Prices rose modestly over the reporting period, as firms balanced persistent cost pressures against demand preservation. Developments in the Middle East have already contributed to fuel cost increases and additional shipping surcharges. A memory chip shortage, attributed to demand from AI infrastructure expansion, has driven a spike in prices for consumer electronics. While land costs and property insurance continued to rise, construction costs were generally noted as stabilizing and some inputs, like drywall, experienced outright declines. Pricing power varied across sectors: consumer-facing firms continued to absorb costs, while providers of specialized business products or services reported little resistance to price increases.
Consumer Spending
Consumer demand remained on par with the previous report, with retailers reporting modest to moderate sales growth. Lower and middle-income consumers continued to face significant pressure: widespread trading down behavior persisted, and food banks and other support agencies noted a rising number of requests for assistance. Higher-income consumers remained resilient, with luxury real estate and autos, wealth management services, high-end retail, and travel showing sustained strength.
Tourism activity expanded modestly during the reporting period. The spring break season proved healthy with hotel occupancies meeting expectations, though rising fuel costs raised concerns about potential softness this summer. Visitor spending was flat across much of the Southeast, but performance varied by market and attraction. Several contacts reported softer leisure travel, while group events and business travel held steady. Cruise demand remained robust, supported by solid onboard spending and healthy advanced bookings for the year.
Construction and Real Estate
Demand for residential real estate rose modestly but remained below year-earlier levels. Housing starts continued to slow, and inventories were either balanced or slightly oversupplied in most areas of the District, helping to alleviate upward price pressures. Contacts noted less urgency among entry-level and move-up buyers, prompting existing home sellers to reduce asking prices, or homebuilders to expand incentives. A growing share of builders have also begun to lower prices. Conversely, luxury homebuilders reported the ability to pull back somewhat on incentives. Florida, where speculative inventory is higher, saw the fewest homes sold above list price.
Commercial real estate activity grew moderately overall. Strong demand helped to lower vacancy rates across most sectors, resulting in both higher rents and asset values. Demand for office space remained concentrated in Class A properties, aided by demolition of obsolete properties and more stable return-to-office patterns. The multifamily sector strengthened with declining vacancies and rising rents, though concessions remained common. Industrial demand remained steady, on balance, with strength driven by data center and energy-related properties. Retail vacancies, however, rose slightly, despite a contraction in inventory.
Transportation
Transportation demand rose at a modest pace, on balance, over the reporting period. Railroads reported robust year-over-year increases in total traffic and intermodal freight volumes. Trucking firms noted steady demand that was marginally higher than year-earlier levels, attributed somewhat to tighter truck capacity. Inland waterway demand was described as flat. Port activity was mixed, with some reporting moderate year-over-year declines in container volumes, and others citing significant growth in containerized traffic. Most transportation contacts anticipate that demand will likely decline amid rising fuel prices, the potential for supply chain disruptions, and greater uncertainty resulting from the conflict in the Middle East, should it be prolonged.
Manufacturing
District manufacturing rose modestly, on balance, since the previous report. Beverage producers experienced strong demand across products. A baby apparel manufacturer reported solid demand for both its low- and high-end clothing and accessories while sales for middle tier products were flat, suggesting a "barbell effect." Automobile manufacturers reported softer demand for lower-priced vehicles, but sales of luxury models were strong. Most manufacturers reported ongoing input cost pressures, an inability to raise prices, and rising uncertainty surrounding the Middle East conflict.
Banking and Finance
District banks reported moderate loan growth. Credit card lending was unchanged, and most other types of lending expanded. Auto lending posted the largest percentage increase, with higher vehicle prices prompting consumers to seek extended loan terms. Commercial lending declined, however, driven by a pullback in small business lending amid tighter lending standards, increased concerns over credit quality, and new U.S. citizenship requirements for SBA loans. Bank merger and acquisition activity remained strong.
Energy
Energy demand was strong over the reporting period, while crude and liquefied natural gas supply tightened due to the closure of the Strait of Hormuz. Most energy contacts expect crude oil prices to remain elevated or continue to rise well into the summer as production infrastructure in the Middle East has been destroyed and resulting inflationary pressures across the broader economy are anticipated. Refiners reported higher margins, particularly for diesel and jet fuel. Electricity demand was characterized as "insatiable," driven by sustained industrial activity and expansion of energy-intensive data centers.
Agriculture
Overall agriculture conditions were flat to slightly down as the sector faced significant margin pressure from elevated input costs, especially surging fertilizer prices resulting from the Middle East conflict. Cotton margins were squeezed as fertilizer producers often refused to provide quotes until delivery. The timber industry continued to face severe challenges from ongoing mill closures and damage from Hurricane Helene in 2024. However, pecan and peach crops were steady. Domestic demand for poultry was strong. Beef exports remained stable, but other commodities faced competition from lower-cost international competitors operating under less stringent regulations. Limited access to Chinese and certain European markets, primarily due to trade policy, stricter regulations, and geopolitics, constrained export growth. Farmers' outlook for 2026 is for flat demand, although concerns about cost and market risks have increased due to the Middle East conflict.
For more information about District economic conditions visit: https://www.atlantafed.org/what-we-study/regional-economy.