Federal Reserve Bank of Atlanta
Summary of Economic Activity
The economy of the Sixth District grew modestly over the reporting period. Employment levels remained flat, and wages continued to grow by low single digits. Prices and nonlabor costs rose moderately. Consumer spending, tourism, and transportation experienced slight growth overall. While commercial real estate and lending increased modestly, residential real estate expanded at a moderate pace, and manufacturing activity was stable. Energy sector activity rose moderately, and agriculture conditions were mixed.
Labor Markets
Employment levels were largely flat, and reports of layoffs remained limited. Shortages of specialized, technical, and skilled trade workers persisted over the reporting period. Some professional services and banking contacts noted hiring for revenue generating/customer-facing roles to increase sales. AI implementation broadened across surveyed firms, as more contacts deployed AI tools and automation to boost employee productivity and efficiency. Similar to previous reports, most firms did 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. However, some contacts noted continued wage pressure for skilled roles, along with concerns among their employees that cost-of-living increases were insufficient in the current inflationary environment. Many contacts reported escalating costs in employer-offered benefits and insurance, much of which were being passed on to employees.
Prices
Price growth remained moderate over the reporting period, with persistent pressure on various input costs. Transportation costs grew notably as diesel prices rose, and demand for rapid delivery of items related to data center projects strained freight and shipping capacity. Wholesalers reported increasing inventory orders to minimize transportation costs or simply absorbing fuel surcharges in their margins. Construction inputs, particularly steel and mechanical equipment, saw more frequent upward price adjustments. Auto, liability, and health insurance costs continued to rise. Firms that have received tariff refunds most often used them to offset other operating costs. Weakening pricing power for retailers persisted, and most reported limited, "surgical" price increases.
Consumer Spending
Consumer spending expanded slightly, with strength in high-end retail offsetting flat or contracting demand in other value tiers. Discretionary spending continued to pull back, as rising fuel and food costs increasingly strained low- to moderate-income consumers. Restaurants reported reduced foot traffic, lower average spend, and increased use of promotional pricing. New auto sales were largely flat amid declining consumer creditworthiness and elevated interest rates.
Tourism activity grew slightly, and some contacts revised forecasts downward for the year. Hoteliers targeted luxury travelers to compensate for a slowdown in group and business travel bookings. While business travel still outpaced leisure, economic uncertainty drove some firms to tighten travel budgets. One hospitality firm noted increased activity at its economy extended-stay hotels, which were being used as living arrangements for some families unable to rent or buy a home. International travel to the District saw a slight rebound but remained below historical norms.
Construction and Real Estate
Home sales improved moderately across the Sixth District, and balanced inventory levels kept price growth stable overall. In comparison to other parts of the country, more homes in the District sold below asking price, especially in Florida, and sellers offered discounts and incentives. Homebuyer confidence was especially weak in the entry-level and move-up segments, and contacts noted many buyers had difficulty qualifying for a mortgage. Some home builders expect that rate buydowns will remain a permanent sales tactic as a long-term competitive advantage over resales.
Commercial real estate conditions expanded modestly on balance. Demand for and supply of office space across classes was stable, though new space drew the strongest investor demand. Retail vacancies remained unchanged. Multifamily demand increased slightly and vacancy rates declined, although rent concessions were still widespread. The industrial sector saw a slight uptick in vacancies as new space came online, but data center construction continued to drive growth.
Transportation
Transportation demand rose slightly. Trucking demand remained soft, with some signs of stabilization driven mainly by industrial sectors tied to advanced manufacturing and data center construction; shipments of residential construction materials and consumer-related freight continued to lag. Freight forwarders reported increased volumes as business inventory levels rose and Asia-to-U.S. trade improved (excluding China). Railroads saw robust intermodal freight volumes and solid increases in total traffic year over year.
Manufacturing
Manufacturing activity was flat over the reporting period. An apparel manufacturer noted stability in both their volumes and pricing but expects 2026 retail sales to be down year over year. Similarly, a large distillery and brewery reported that demand was flat to slightly down for the year, and that long-term demand forecasts may be shifting downward because of changing consumer preferences and consumption trends, such as the growing use of GLP-1 drugs and alcohol alternatives. Contacts continued to report strength in data center construction, industrial components fabrication, and advanced manufacturing, which offset the slight contraction in other sectors.
Banking and Finance
While loan growth was modest overall, niche lending continued to show the strongest growth, driven by specialized consumer and business loans, and loans to non-depository institutions. Credit card lending increased modestly, but other consumer loan types were unchanged. Some banks reported an increase in "buy now-pay later" financing, mostly for dining out and buying groceries. Construction and land development lending expanded amid continued data center buildouts. Several institutions exited the SBA lending market because of increased risk and unclear compliance requirements. Cash-to-total assets ratios fell in tandem with a decline in bank borrowing, signaling healthy profit margins in aggregate. Five Districtwide mergers were announced and robust activity in this space is expected to continue through year end.
Energy
Energy activity grew moderately over the reporting period. Consumer and industrial demand, particularly for diesel and gasoline, remained solid. However, decreases in global inventories related to the crisis in the Middle East and the conflict in Europe raised concerns about future supply availability. American production remained resilient, but contacts noted that they alone cannot support the demand from both domestic and international consumers. Refining contacts reported record margins for their products, as limited international capacity drove more robust demand. The contact noted that scheduled maintenance for American refiners cannot be deferred past early 2027, which will likely further constrain supply and drive continued price increases. Utility contacts described persistent strength in demand from AI-related infrastructure, even with many projects not projected to be operational until the late 2020s.
Agriculture
Agriculture contacts reported mixed conditions across the Southeast. Contacts shared that dietary trends and export barriers have reshaped demand, with poultry and beef impacted positively, while dairy, grain and rice exports declined. While one poultry farmer expects that GLP-1 drugs will drive strong, lasting demand for proteins like chicken and beef for the foreseeable future, another noted that current demand is unusually weak and unstable compared to historical norms because consumers were fatigued with chicken and were buying beef, despite higher prices. This has contributed to a glut of chicken and falling wholesale spot prices. Robust demand for beef has propped up dairy farmers, who increased calf production to sell to cattle operations.
For more information about District economic conditions visit: https://www.atlantafed.org/what-we-study/regional-economy.