Federal Reserve Bank of Atlanta
Summary of Economic Activity
Economic activity in the Sixth District was fairly flat, on balance, over the reporting period. Labor markets and wage pressures eased further, and worker availability and turnover improved. Cost growth moderated overall, but some construction and freight costs increased. Firms' pricing power weakened. Consumer spending was flat. Leisure travel softened, but group and business travel strengthened. Home sales slowed and existing home inventories grew. Commercial real estate conditions varied. Transportation activity was mixed. Loan growth was flat, and delinquencies rose. Energy activity varied by sector. Manufacturing declined somewhat. Agriculture conditions improved slightly.
Labor Markets
The pace of hiring grew slightly, on par with the previous report. Most firms continued to report improvements in available talent, and turnover had largely stabilized. Some contacts noted that the need for labor eased amid uncertainty about future demand. Most firms continued to fill open positions, but several noted scrutinizing whether an open position should automatically be filled. Worker shortages persisted in construction, maintenance, retail, nursing, and tourism. Employers in South Florida and Nashville said the lack of housing affordability hindered their ability to attract and retain workers. Firms continued to turn to automation and outsourcing for cost savings, or to compensate for current or expected labor shortages.
Most contacts indicated wage growth continued to ease. However, wage pressures remained elevated in construction and skilled trades. A manufacturer, who described labor as tight and wage growth in the 3–4 percent range, noted that the firm is experiencing "paid-time-off and break-time inflation."
Prices
Some nonlabor construction input costs, like copper and electrical supplies, increased notably over the reporting period, although greater competition among subcontractor bids provided for some offset. Freight costs, especially container rates, also rose. Food and commodities costs were largely reported as flattening, and fuel cost increases moderated. Firms' pricing power weakened amid softening demand. Insurance costs continued to rise, though at a slower pace, with cyber risk insurance often mentioned as an outsized expense. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit cost growth remained relatively unchanged at 2.8 percent, on average, in June from 2.7 percent in May; firms' year-ahead inflation expectations for unit cost growth has remained at 2.3 percent, on average, since April.
Consumer Spending and Tourism
District retailers reported that consumer demand was in line with expectations--flat year-over-year sales were described as the new normal. Shoppers remained cautious with discretionary spending, seeking heavy discounts, and diligently comparing prices when purchasing more expensive items. Auto dealerships reported that manufacturers continued to offer incentives to boost sales, which were relatively flat compared with a year ago.
Tourism and hospitality contacts noted lower than expected demand for leisure travel since the previous report; however, group and business travel continued to improve. Hotel occupancy and average daily rates moderated over the reporting period, and on-property food and beverage spending fell below expectations. Hospitality contacts expect activity to remain flat for the rest of the year.
Construction and Real Estate
Declining home ownership affordability continued to stifle housing demand throughout the District. With home prices near peak levels and interest rates still elevated, home sales in most markets were flat or slightly down compared with a year ago. Rising taxes, homeowners' insurance, and HOA costs have become a growing concern, especially for households with fixed incomes. Although supply shortages persisted, existing home inventories rose sharply, especially in Florida. A higher percentage of homes sold below the initial asking price, suggesting a market shift in favor of buyers. New home demand remained strong, but homebuilders expressed concerns about higher mortgage interest rates hindering future sales.
Commercial real estate (CRE) activity was mixed. Slowing activity in office and multifamily resulted in rising vacancy rates and flat-to-declining rent growth; foreclosure activity in these segments accelerated. Industrial starts slowed. Contacts noted an increase in "clicks-to-bricks" investments, where online sales are supplemented by a brick-and-mortar presence. Appraisal accuracy remained challenging, influencing transaction levels. Rising CRE loan maturities continued to raise concerns for all lender types.
Transportation
Transportation activity remained mixed. Trucking contacts continued to report lower than normal seasonal demand; new Class-8 truck orders were noted as slowing. Some logistics firms reported declines in wholesale, retail, and direct-to-consumer deliveries of big and bulky items, such as appliances. Warehousing contacts experienced a slowdown in demand for distribution and warehouse space. Traffic at District ports varied, and contacts continued to cite east coast labor negotiations as a potential near-term headwind.
Manufacturing
Manufacturing activity decreased slightly since the previous report. There were reports of slowing in orders for new heavy equipment. Manufacturers also noted soft demand for wood products, especially related to housing construction. Orders of housewares were slow but steady. However, there were some reports of a slight uptick in orders for clothing, and demand for manufactured goods supporting infrastructure projects was strong. The Manufacturing Sector Report of the Atlanta Fed's Business Inflation Expectations Survey pointed to an aggregate decline in both sales and profit margins in recent weeks.
Banking and Finance
Loan growth was flat as underwriting remained tight and interest rates stayed elevated. High deposit and borrowing costs continued to weigh on bank earnings with some financial institutions selling securities in order to reinvest proceeds into higher-yielding assets. Elevated interest rates adversely impacted bank customers as businesses and consumers refinanced debt at higher rates. Increased delinquencies were observed as credit conditions continued to normalize. However, for certain commercial real estate and consumer loans, delinquency levels are now above pre-pandemic levels.
Energy
Reports on energy activity varied by sector. Contacts from the oil and gas sector saw flat to modest growth, though a slight slowdown in consumption of diesel fuel was noted. Coal production remained resilient amid stable global demand. Chemical producers described a softening across most segments, particularly chemicals produced for housing, automotive, and advanced materials; however, the pharmaceuticals segment remained strong. Utility contacts reported increasing power demand in commercial and industrial segments, largely attributed to new and expanding data center projects focused on the growing use of artificial intelligence technology. Contacts in the renewable energy sector shared that election uncertainty had slowed capital investment activity.
Agriculture
Agriculture conditions improved slightly in recent weeks. Cattle farmers reported strong sales resulting from limited national supply. Poultry sales strengthened amid high beef prices, and poultry farmers expressed increased optimism about the remainder of the year. Dairy farmers saw strong demand and higher sales prices and were confident looking forward, but low cattle supply limited growth opportunities. However, row crops including cotton, continued to see weak demand. Soft grain prices hurt growers but benefitted farmers buying feed. Florida citrus farmers struggled as harvests were disappointing, leading to expectations of more growers exiting the market over the next year.
For more information about District economic conditions visit: https://www.atlantafed.org/economy-matters/regional-economics.