Federal Reserve Bank of Atlanta
Summary of Economic Activity
The Sixth District economy expanded at a modest pace over the reporting period. Employment levels were flat to down slightly, and modest wage growth was described as broadly in line with pre-pandemic norms. Prices and nonlabor costs rose moderately, on average, which were attributed to both tariffs and the Middle East conflict. Demand for social service providers increased as rising food and utility costs further strained household finances. Retail sales continued to grow at a modest pace, but travel and tourism activity slowed. Residential real estate conditions declined overall despite a slight improvement in sales. Commercial real estate activity was flat on balance. Transportation and manufacturing activity rose modestly. Loan growth was moderate, driven by specialized lending. Energy demand grew moderately.
Labor Markets
Employment levels in the District were flat to slightly down over the reporting period as most firms continued to keep head counts even or adjust downward through attrition. Reports of layoffs remained limited. Some businesses in industries like health care and data center construction reported hiring for growth or for specialized skills. Several firms noted that the use of AI and automation has improved productivity and shifted job roles but was not expected to lead to significant workforce reductions in the near term.
Most contacts reported modest annual wage increases in the 2 to 3 percent range, though stronger wage pressures continued for in-demand roles.
Prices
Prices and nonlabor costs rose moderately over the reporting period as escalating oil prices drove up gas prices, airline fares, and shipping surcharges. Many firms expect additional price hikes for petrochemical products over the coming months as impacts from Middle East tensions move through value chains. Electronics suppliers faced higher input costs and longer delivery times due to chip shortages. Construction costs increased, largely attributed to tariffs on machinery, although slower project pipelines drove more competitive bidding. Some contacts adopted cost-containment strategies such as optimizing supply chains and reducing product offerings. Pricing power remained bifurcated, with many firms adjusting prices upward on an item-by-item basis as higher-income consumers tolerated increases more than value-seeking shoppers.
Community Perspectives
Contacts at social service, economic development, and workforce organizations noted that rising food prices and elevated utility costs—due in part to a colder than usual winter in several parts of the District—continued to put pressure on low- and moderate-income households. In the early weeks following the outbreak of conflict in the Middle East, some contacts reported concerns that higher gasoline prices could further strain household budgets should the situation persist. Several contacts highlighted growing financial stress among middle-income households, particularly those who do not qualify for public assistance or are unfamiliar with available support resources. Nonetheless, social service providers experienced an uptick in demand for assistance. Nonprofit organizations also reported increased challenges in fundraising, citing "donor fatigue," which some contacts indicated may threaten the sustainability of current service levels.
Consumer Spending
Consumer spending grew at a modest pace. Higher-income consumers drove strong demand for premium goods and services, with one contact describing a focus on "unapologetic luxury." However, retailers and other consumer-facing businesses noted continued financial stress among middle- and lower-income households. Persistent price sensitivity contributed to slower restaurant traffic, increased promotional activity, and constrained demand even for lower-priced discretionary services. New auto sales were below expectations amid elevated MSRPs, interest rates, and gas prices.
District travel and tourism contacts, including cruise lines, indicated that, on balance, demand declined modestly since the previous report, which was attributed to higher travel costs and rising energy prices. Luxury travel remained resilient, while more budget-conscious segments experienced a pullback. Additionally, groups and business travelers shortened their stays to manage costs. However, hospitality contacts remain optimistic about the upcoming summer season, supported in part by World Cup events being hosted in two District cities.
Construction and Real Estate
Residential real estate conditions declined modestly across the District as economic uncertainty and elevated mortgage rates dampened demand, though high-end sales and certain markets remained somewhat durable. Home prices remained flat or fell modestly, with southwest Florida experiencing the sharpest downward pressure. Home sales improved slightly, primarily driven by aggressive price reductions and incentives, but existing inventory shrank as delistings rose, and affordability deteriorated in spite of modestly falling prices. Builders reported sharp traffic declines and growing buyer hesitancy, with incentives becoming increasingly ineffective; one builder noted that even at lower price points, they "can't give a house away."
Commercial real estate (CRE) conditions were generally flat, but dynamics varied by sector. Office activity showed moderate growth in Class A space, even as widespread repricing forced many owners to sell distressed assets at deep discounts when maturing debt exceeded valuations. Demand for retail space softened, with slight rent declines and minimal new supply. Multifamily conditions stabilized but remained stressed in saturated markets where concessions continued and price sensitivity intensified. Industrial demand was solid, supported by energy, logistics and nearshoring trends, and strong data center construction. Some CRE contacts noted that capital remained on the sidelines as uncertainty around energy costs and global conflicts weighed on sentiment.
Transportation
Demand for transportation firms rose modestly since the previous report. Trucking firms reported gradual increases in demand, boosted somewhat by shipments of heavy machinery involved in data center construction, energy, aerospace, and defense activity. Trucking freight rates improved slightly amid tighter capacity and fuel surcharges; however, margins remained squeezed. Class I railroads continued to experience significant increases in carloads, intermodal freight, and total traffic compared with year-earlier levels. District ports reported solid auto and other roll-on, roll-off equipment shipments. Total container volumes declined year over year, but the decrease reflects comparison to 2025's pre-tariff inventory buildup.
Manufacturing
Manufacturing activity continued to grow at a modest pace. Producers of tractor parts noted significant declines in orders from customers in the Middle East, but demand in the U.S. was healthy. By contrast, a manufacturer of agriculture machinery reported strong global sales, but depressed domestic sales because of increased competition and weakened demand for agricultural products in the U.S. Defense- and data center-related manufacturers noted solid growth in revenues and robust pipelines for the next 3 to 5 years. A cast-iron cookware manufacturer saw slight growth and expects a strong finish to 2026, dependent on the duration of the Middle East conflict.
Banking and Finance
Loan growth was moderate over the reporting period. Niche and specialized lending showed the strongest gains: this category includes various specialized consumer or business loans along with lending to non-depository financial institutions. Consumer lending declined, driven by credit cards and other consumer loans, excluding auto, and more District banks reported minor increases in loan delinquencies. Banks' liquidity improved as cash-to-total-asset ratios rose.
Energy
Contacts indicated that global energy demand grew at a moderate pace overall. Commercial consumption of fuel products such as gasoline, diesel, and natural gas was reported as largely unchanged. Refiners operated at high utilization rates with strong margins, while chemical producers noted some softening in activity. Energy sector contacts also continued to highlight that price dynamics and supply chain disruptions stemming from the conflict in the Middle East are likely to have a prolonged and unpredictable impact in the months ahead.
For more information about District economic conditions visit: https://www.atlantafed.org/what-we-study/regional-economy.