Federal Reserve Bank of Atlanta
Summary of Economic Activity
The economy of the Sixth District continued to expand at a modest pace. Employment levels remained flat to slightly down, and wages grew by low single digits. Prices and input costs rose moderately. Consumer spending, along with travel and tourism, increased modestly. Residential and commercial real estate conditions were little changed, on balance. Demand for transportation and manufacturing sectors continued to pick up. Loan growth was driven by consumer and specialized lending. Energy demand was steady, but agricultural conditions deteriorated.
Labor Markets
Employment levels were flat to slightly down over the reporting period as most firms continued to keep head counts even or adjust downward through attrition and minimal backfilling of roles. Reports of layoffs remained limited. Some businesses in industries like health care and data center construction reported hiring for growth or for specialized skills. Utilization of AI broadened, with more contacts describing deployments of AI tools and automation to boost employee productivity and efficiency. However, most do not expect these efforts to lead to significant workforce reductions in the near term.
Most contacts reported moderate annual wage increases in the 2–3 percent range, though stronger wage pressures continued for in-demand or technical roles.
Prices
Prices and nonlabor costs rose moderately. Contacts continued to report elevated fuel and transportation costs, and several firms noted large price increases in petrochemical derivatives like resins and adhesives as the Middle East conflict persisted. Fertilizer costs continued to rise sharply, agricultural equipment prices have tripled in some cases, and insurance costs have increased substantially, placing additional pressure on farmers' margins. In commercial construction, the accelerated build-out of the infrastructure for emerging AI technologies contributed to supply constraints and higher prices for steel, transformers, and other machinery. Despite these conditions, some firms mitigated cost pressures by adding contract escalators or by leveraging supply chain relationships developed during the pandemic and previous tariff cycles. Restauranteurs and retailers reported persistent price sensitivity among households that limited pricing power, allowing for only highly selective increases.
Consumer Spending
Consumer spending expanded at a modest pace. Retailers indicated that higher-income households generally maintained steady spending levels, though a few noted emerging signs of softening within this group. Lower- and middle-income consumers continued to display signs of increasing financial stress, including trading down, buying less but shopping more frequently, and pulling back on discretionary items. Restaurants reported shifts toward value among higher-end customers, with some diners opting to bring their own wine and pay a corkage fee rather than purchasing wine with their meal. New auto sales softened slightly amid affordability challenges and higher interest rates.
Tourism activity in the District grew modestly, in part due to World Cup activities in Miami and Atlanta, which bolstered both hotel and short-term rental performance across those markets. Many leisure travelers remained highly budget conscious, contributing to steadier demand in markets and properties that emphasize affordability and perceived value. Luxury and upscale travel were consistent with the prolonged trend of strong growth in these segments. Cruise activity was solid, though several contacts noted that year-over-year onboard spending was flat to slightly down. Overall, travel held firm, particularly on weekends, but contacts reported greater price sensitivity and shorter booking windows.
Construction and Real Estate
Home sales improved modestly throughout most of the District as inventory growth moderated amid rising delistings, of which Atlanta recorded the highest rate among major U.S. metropolitan areas. Home prices remained relatively flat, and fewer markets saw homes selling above asking price relative to other parts of the country. While aggressive incentives from home builders led to an uptick in new home sales, economic uncertainty and rising mortgage rates resulted in builders adjusting revenue and sales expectations downward, streamlining operations, and reducing excess labor costs.
Commercial real estate conditions were flat in aggregate with sector-specific variation. The flight to quality in office space persisted, and vacancy rates in Class A space fell into single digits for the first time since 2020. Contacts noted a shift toward reducing office footprints in favor of upgraded amenities. The retail sector was stable, with the supply of retail space keeping pace with demand. Multifamily contacts continued to report elevated vacancy rates and concessions. In the industrial sector, new supply slightly outpaced demand, and traditional warehousing experienced softer demand compared to tech-driven logistics space.
Transportation
Transportation demand rose modestly. Trucking brokerages reported stable to improving conditions as pandemic-era excess capacity unwound, with volumes exceeding year-earlier levels for the first time since 2021. Freight growth was concentrated in data center construction, machinery, aerospace, and defense, while housing-related shipments remained soft. The tighter trucking market and elevated energy prices created tailwinds for railroads as shippers converted to rail. Freight forwarders saw renewed growth following tariff disruptions, though some shifted shipping strategies toward higher-margin business-to-business and health-care segments. Contacts shared cautious optimism stemming from emerging manufacturing activity; however, trade policy uncertainty, along with elevated interest rates and insurance costs, pose risks to the outlook.
Manufacturing
On balance, manufacturing activity grew at a modest pace. A producer of information solutions equipment and software reported strong, broad-based growth, with revenue being driven by digitization and AI adoption. Some food manufacturers reported gains in market share despite implementing substantial price increases. Steel fabricators experienced strong growth driven by the active LNG market; however, steel production tied to real estate construction softened because of rising cost pressures and uncertainty.
Banking and Finance
Overall modest loan growth was supported primarily by consumer lending, even as auto and credit card lending ticked down. Niche and specialized lending were also strong. An increase in short-term personal loans or "buy now, pay later" financing pointed to ongoing household financial strain. Commercial and industrial lending declined, and contacts noted many businesses deferred investment as economic and geopolitical uncertainty continued. Cash-to-assets ratios fell moderately, implying a reallocation of liquidity into investments or dividends.
Energy
Energy sector conditions remained stable despite the conflict in the Middle East. Firms continued to report rising input costs affecting both oil production and oilfield services, adding pressure to operating margins. Several contacts noted that softening global demand contributed to recent crude price declines, although most emphasized that ongoing uncertainty surrounding the Strait of Hormuz disrupted shipments and kept inventories tight. Industrial energy demand remained strong, largely because of accelerating investments in AI-related infrastructure across the Southeast. On balance, expectations point to steady activity, though cost pressures will continue to shape planning and near-term outlooks.
Agriculture
Agricultural conditions across the region were highly stressed amid mixed demand, with multiple contacts reporting weak commodity prices, escalating input costs, and tightening credit. Row-crop farmers faced severe financial strain as fuel costs remained elevated, tariffs and international market shifts resulted in depressed soybean prices, and yields continued to fall short of covering operating debt, leading many producers to roll over losses for another year. Citrus producers reported declining demand due to concerns about sugar and sharply rising orange-juice prices, though demand for fresh fruit was strong.
For more information about District economic conditions visit: https://www.atlantafed.org/what-we-study/regional-economy.