Federal Reserve Bank of Atlanta
Summary of Economic Activity
The Sixth District economy continued to grow at a modest pace over the reporting period. Employment levels were unchanged, on balance, and wages continued to grow by low single digits. Prices and input costs rose moderately. Consumer spending, travel and tourism, and residential real estate sales increased modestly. Commercial real estate, manufacturing, and energy saw moderate growth. Demand for transportation grew slowly. Loan growth was modest and driven by specialized lending and construction activity.
Labor Markets
Employment levels were flat in the aggregate. Reports of layoffs remained limited. Some construction and advanced manufacturing firms noted continued labor shortages for specialized roles like electricians. Hiring slowed somewhat in the health-care sector. Utilization of AI broadened across firms, with more contacts deploying 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 to 3 percent range, though wage pressures continued for technical or specialized roles. Many contacts reported escalating costs in employer-offered benefits and insurance.
Prices
Prices rose moderately over the reporting period, and nonlabor costs increased at a moderate to strong pace across various inputs. Insurance and health-care cost increases were notably robust, and freight and other shipping costs continued to rise due to fuel surcharges. Food costs moved higher, in some cases because of tariffs, though chocolate prices fell, and beef wholesalers achieved savings by sourcing domestically. Other cost mitigation tactics included implementing internal efficiencies, switching payment rails to avoid processing fees, and "slow steaming" of ships to reduce fuel usage in exchange for longer delivery windows. Pricing power remained modest overall outside of select categories; most firms that successfully raised prices are in industries related to data center buildouts. Consumer-facing firms continued to experience customer price sensitivity and utilized promotional "throwback prices" or dynamic pricing models to boost sales volumes.
Community Perspectives
Financial strain among low- and moderate-income populations worsened over the summer as higher living expenses compounded existing affordability challenges. Social services providers noted that cost pressures negatively impacted both low- and moderate-income households, with providers observing significant needs among both populations as well as an overall increase in assistance requests. Community contacts indicated that many individuals and families have increasingly relied on debt—including credit cards, payday loans, and "buy now, pay later" services to cover essential expenses. Lenders reported that small businesses continued to struggle with increased operational costs as well as with a financially fragile customer base.
Consumer Spending
Consumer spending expanded modestly, supported by robust activity in the luxury segment as demand for high-dollar dining and experiences remained strong. Retailers also noted a continued "flight to value." For example, private label products outperformed name brands. Restaurants reported broadening signs of increased consumer caution: diners spent less per visit, although for most restauranteurs foot traffic remained steady and sales growth was slightly positive year-over-year. New auto sales softened somewhat amid rising gasoline costs and persistently elevated interest rates.
Tourism activity grew modestly, with demand concentrated on upscale properties. Mid-tier segments experienced slight declines in both leisure and business travel spending. Average daily rates continued to rise, offsetting higher costs, and drive-to destinations saw increased bookings as airfares remained elevated. Some hotel contacts noted that World Cup-related rate increases may have priced out typical summer visitors. Shortened booking windows complicated forecasting for the fall, but most properties expressed cautious optimism over the remainder of the year.
Construction and Real Estate
Home sales improved modestly across most markets in the Sixth District, with discounts and incentives driving activity. Elevated mortgage rates and declining affordability continued to weigh on buyer sentiment, while falling inventory levels in many geographies contributed to upward pressure on home prices. Entry-level demand was constrained by buyer qualification challenges and luxury demand showed signs of softening. In contrast, mid-tier properties experienced slightly better market conditions. Speculative inventories continued to moderate, and builders expect the aggressive use of incentives to continue as the market enters the traditionally slower season.
Commercial real estate activity expanded in aggregate, with most segments reporting moderate growth. Demand outpaced supply in Class A office space as flight to quality persisted, and Atlanta firms noted numerous projects underway to convert underperforming B and C space to multifamily usage. Throughout the District, multifamily vacancy rates improved slightly, supported by ongoing rent concessions and reduced inventory. Retail vacancies also fell, with growth concentrated in value-oriented brands benefiting from price-conscious consumers. Industrial real estate saw rapid absorption of new inventory, which was focused in the data center space.
Transportation
Transportation demand rose modestly amid emerging strength in the manufacturing and agricultural sectors. A logistics company noted dramatic turnaround in its barging segment, with robust demand for major agricultural commodities like corn, soybeans, and soy meal. Trucking contacts noted modest increases in demand and subsequent head counts across most business lines. A short-line railroad reported strong demand for first and last mile freight movements, but slight weakness in consumer-related freight like paper, pulp and packaging materials. Multiple transportation contacts implemented fuel surcharges with minimal impacts to demand. Some contacts expressed concerns about the continued effects of both tariff policies and geopolitical risk on the sector.
Manufacturing
Manufacturing activity grew at a moderate pace. A fabricator of specialty metal products noted growth across all business lines, with particularly strong demand for aerospace and defense-related goods. Similarly, a military shipbuilder expected ongoing demand for the next decade given strength in defense spending. Additionally, advanced manufacturers noted consistent volumes and sustained pricing power. Manufacturers involved in data center construction continued to experience strong activity as well. However, demand for consumer-facing manufacturing industries continued to slow.
Banking and Finance
Loan growth remained modest over the reporting period. While auto and credit card portfolios declined modestly, all other consumer lending offset those declines. Short-term personal loans along with niche and specialized lending for individuals and businesses remained prevalent. Construction and land development lending expanded moderately, with activity concentrated in data center projects. Many contacts noted much tighter underwriting standards, affecting small businesses most acutely. The cash-to-total assets ratio increased moderately as large denomination deposits increased in response to a rising rate environment. Bank mergers and acquisitions slowed; however, additional merger activity is anticipated through year-end.
Energy
Energy sector conditions were mixed over the reporting period. Consumer and industrial demand remained solid, with particular strength in demand from AI-related infrastructure investments, even though oil supply was constrained. Oil supply declines were attributed to challenges navigating the Strait of Hormuz and other bypass routes amid renewed conflict escalation in the Middle East, putting increased pressure on inventories and prices. Firms continued to report rising input costs for both oil production and oilfield services, adding pressure to operating margins. Domestic production remained robust but contacts noted anticipated constraints in the first quarter of 2027 as refineries can no longer defer maintenance and will go offline to address delayed upkeep.
For more information about District economic conditions visit: https://www.atlantafed.org/what-we-study/regional-economy.