Federal Reserve Bank of Atlanta
Summary of Economic Activity
The economy of the Sixth District grew slightly from October through mid-November. Employment was steady, but many firms cited plans to hold employment levels flat or reduce headcount via attrition. Wage growth continued to slow. Input costs and prices remained stable, on net. Workforce contacts described an excess of entry-level talent in relation to available positions, and an increase in retirees seeking work to supplement income. Consumer spending improved even amid persistent price sensitivity, and tourism declined at a modest pace. Housing demand fell, especially in Florida, and existing home inventories grew. Transportation activity increased slightly. Manufacturing declined. Loan growth was slow. Energy activity grew modestly.
Labor Markets
Employment remained steady since the previous report. The pace of hiring was slow, and firms often hired only to backfill open positions. Many firms cited plans to hold headcount flat into 2025, and some intended to slightly reduce headcount, largely through attrition. Several contacts reported combining roles or relying on automation to improve efficiencies. Though not representative of the majority of firms, some contacts said they may resort to layoffs if demand does not strengthen. However, there were also a few reports of hiring for growth, particularly in healthcare.
Firms reported that wage growth was slow, and many expect 2025 wage increases to be in line with or even below 2019 increases.
Prices
Input costs and prices were relatively unchanged over the reporting period. Construction input costs continued to stabilize, with lumber reaching a four-year low and steel returning to historical norms. Rent, food, and utilities costs were broadly reported as flat or slightly down, though concerns around weather events impacting crops and thus future supply were noted. Insurance premiums remained the most frequently cited inflationary pressure. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit cost growth averaged 2.6 percent in October, unchanged from September. Firms' year-ahead inflation expectations for unit cost growth were 2.2 percent, on average, up slightly from 2.1 percent in September.
Community Perspectives
Despite sustained demand for affordable rental housing, developer contacts indicated recent challenges to fully financing their projects, including funding gaps that emerged late in the pre-development stage. Contacts observed that they may have to pull funds from projects earlier in the pipeline to fill these financing gaps. Workforce intermediaries and businesses reported that moderating job growth contributed to greater confidence among employers that they can obtain the labor they need. Several labor contacts noted an oversaturation of entry-level talent, at least relative to the availability of aligned positions. Other sources reported increased interest among retirees in finding work to supplement incomes.
Consumer Spending and Tourism
Retail sales improved modestly over the reporting period. Many retailers saw increased traffic and sales. Consumers across all income levels exhibited increased price sensitivity, often shifting to value brands. Merchants said promotions were effective and customers were more willing to spend if the price was right. Many firms revised up year-end expectations from a few months ago and were increasingly optimistic for a solid 2025. Several retailers noted stocking up on inventory and pulling purchases of imports forward to get ahead of any potential price increases amid uncertainty surrounding international trade policy and possible port strikes.
Tourism in the District declined modestly, as travel and hospitality contacts reported "coming down from a 2022 sugar high." Some contacts noted trends pointing to subdued spending by lower- and middle-income travelers who are more often choosing to rent a home for multiple families and stay in rather than eat out. An area of strength in tourism activity was driven by higher-income travelers and cruising. The outlook for 2025 is cautiously optimistic, though concerns around weather-related events, regulatory uncertainty, and ongoing cost pressures were mentioned.
Construction and Real Estate
Rising mortgage rates and lagging effects of recent weather events led to a moderate decline in housing demand over the reporting period. While either flat or slightly up in most of the District, year-over-year sales in Florida declined sharply in October. Existing home inventory also increased in many Florida markets, with some, most notably in southwest Florida, now considered oversupplied. Still, home prices remained stable and there was no significant downward price pressure. Mortgage rates, high home prices and insurance premiums continued to challenge affordability, especially for first-time buyers. Homebuilders still offered aggressive incentives to offset declining affordability and to sell speculative inventory.
District commercial real estate (CRE) markets experienced mixed conditions since the previous report. Multifamily properties continued to experience rising vacancy rates; however, contacts reported that demand accelerated as offers of concessions rose. The industrial sector was described as slow but stable. Non-bank lenders reported rising CRE loan delinquencies. Contacts noted an uptick in the number of banks returning to CRE lending, but increasing long-term rates and loan maturities continued to create challenges for all lender types.
Transportation
Demand for transportation services grew slightly over the reporting period. Railroads saw an uptick in total traffic along with significant increases in shipments of petroleum and petroleum products and of primary forest products, which were partially offset by notable declines in grain, food, metallic ores, coal, and coke. Intermodal activity was flat. Third-party logistics firms cited stable demand. Container volumes rose for ocean carriers and District ports. Trucking activity was flat to slightly down since the previous report, and significantly lower than year-earlier levels. Inland barge carriers characterized demand as flat to slightly improved.
Manufacturing
Manufacturing activity continued to decline at a modest pace, on net, since the previous report. Some contacts in the steel industry cited weakening demand and compressed margins; however, others noted strong sales and considerable backlogs. Makers of chemicals reported softer sales. More broadly, manufacturers experienced further declines in output, new orders, backlogs, finished goods inventories, and increased supplier delivery times. The outlook for the next 12 months was cautiously optimistic, with expectations for gradual growth.
Banking and Finance
Loan growth was modest, and financial institutions anticipate increased loan demand as short-term interest rates decline. Multifamily lending increased moderately as demand for housing exceeded supply. Asset quality was stable with low levels of nonperforming loans as a percentage of total loans. Borrowing by banks continued to decline as institutions reduced reliance on more expensive funding sources. Declining cash balances fueled diminishing cash-to-assets ratios at District institutions and across the industry more broadly over the reporting period.
Energy
On balance, activity in the energy sector grew modestly. Oil and gas production, refining, and chemical manufacturing were described as flat, and contacts noted supply and demand in these sectors were generally in balance. However, demand for electricity and renewable energy sources was described as very strong and growing, the former largely driven by data center projects. Utility company contacts reported that growing demand for electricity across the U.S. necessitated significant grid modernization, and while generation options such as higher natural gas usage, renewables, nuclear, storage, and more are in development, most contacts expect utilization to take two years or more.
For more information about District economic conditions visit: https://www.atlantafed.org/economy-matters/regional-economics.