Federal Reserve Bank of Atlanta
Summary of Economic Activity
The Sixth District economy grew modestly since mid-November. Employment remained steady, with many firms reporting plans to hold employment levels flat in 2025. Wages, input costs and prices rose modestly, and firms' pricing power was mixed. Consumer spending and travel and tourism activity expanded moderately, and auto sales were strong. Home sales increased modestly, and existing home inventories improved. Demand for transportation services rose slightly. Manufacturing activity continued to decline. Loan growth was moderate. Energy activity increased, but agriculture demand declined.
Labor Markets
Employment was little changed in recent weeks, as firms held headcounts steady. Many contacts plan to keep staffing levels flat into 2025, although some expect to reduce headcount slightly, largely through attrition. A few reported they may need to pursue layoffs if demand softens. However, there were a few reports of hiring for growth. Firms continued to report ample availability of labor, which most contacts expect will continue in the coming months.
Contacts reported modest wage growth. Most said expectations for 2025 wage increases were roughly in line with pre-pandemic growth rates, and similar to or slightly below those observed in 2024. Easing wage inflation was particularly notable among white-collar workers. Only a minority of contacts noted continued elevated wage pressures for some roles such as frontline workers, union employees, or skilled roles that are difficult to fill.
Prices
Input costs and prices increased modestly over the reporting period. Insurance and labor remained the principal cost concerns for firms. While some contacts reported a slight moderation in insurance cost increases, even relatively modest increases in insurance costs created cost pressures for firms. On the health insurance side, many employers planned to pass on cost increases to employees, but increases in other types of insurance were likely to be passed through to final prices. Food and shipping costs were described as generally stable. Firms pointed to diversified supply chains as a potential buffer to proposed tariffs. Pricing power was mixed, with firms utilizing targeted discounting to maintain demand.
Consumer Spending and Tourism
Consumer spending grew moderately in recent weeks. Retailers reported strong holiday sales, which were characterized as better than expected. Buyers of luxury goods, in particular, continued to spend. Contacts said promotions remained effective, and customers looking for deals were willing to spend if the price was right. Spending on entertainment rose from an already strong level, as contacts reported plays and concerts were sold out. There was some softness in quick service restaurants, as ticket sizes shrank, or customers opted for value meals, while middle- and higher-end restaurants saw solid demand. Auto sales were strong, with inventories and days on the lot declining.
Travel and tourism activity increased at a moderate pace in recent weeks. Many industry contacts reported stronger holiday travel than last year. Some hotels noted room rates were down slightly, but many reported strong bookings and increased revenue. Cruising activity, as well as business and group travel, remained strong.
Construction and Real Estate
In spite of elevated mortgage interest rates and home prices, housing sales increased modestly over the reporting period. With some exceptions, existing home supply improved significantly throughout the District. Homebuilders continued to offer incentives and discounts to offset higher mortgage interest rates. Builders also slowed the pace of speculative inventory starts to allow existing inventory to be absorbed, in an effort to prevent an inventory buildup of new homes.
Commercial real estate (CRE) conditions remained mixed. With the aid of concessions, multifamily demand continued to increase, however, already elevated vacancy rates rose further. Contacts reported growing concern in a stable but slowing industrial sector. Non-bank lenders noted greater amounts of CRE loan delinquencies. The number of banks returning to the CRE lending market rose, but rising long-term rates and CRE loan maturities continued to create challenges for all lender types.
Transportation
Transportation activity grew slightly, on balance, since the previous report. Short-line railroad volumes were described as flat; however, Class I railroads saw solid increases in intermodal freight and total traffic. Some logistics contacts noted relatively stable volumes and flat revenues. Truckload service providers reported subdued peak season volumes and flat overall van cargo, but an uptick in industrial freight. Inland waterway freight activity picked up. District ports reported continued increases in container volumes and roll-on/roll-off cargo. However, the potential for an east coast port strike remains a downside risk. Transportation contacts noted uncertainty over future trade policy, the regulatory environment, and insurance costs.
Manufacturing
With some exceptions, overall manufacturing activity continued to decline modestly. According to the Atlanta Fed's Business Inflation Expectations Manufacturing Sector Report, more than two-thirds of respondents stated that demand remained the same or had declined over the past twelve months. Firms facing lower demand reported adjusting by eliminating open positions and/or laying off staff and reducing hours. Firms with improved demand increased capacity, prices, and capital investments. Risks to the outlook included labor shortages, concerns over tariffs, and potential supply chain disruptions at east coast ports that would result from a labor strike.
Banking and Finance
Sixth District financial institutions experienced moderate loan growth, driven by increases in multifamily loans and first-lien mortgages. Construction, land development loans, and auto loans contracted modestly; all other major loan categories increased moderately. Asset quality remained stable with low levels of nonperforming loans as a percentage of total loans. Both deposit balances and borrowings by banks increased, as loan-to-deposit ratios fell amid rising loan growth. Cash balances grew, outpacing asset growth.
Energy
Energy activity grew modestly, on net, over the reporting period. Rising demand was largely driven by data center growth across the U.S. Utility contacts noted that near-term demand will be met with a combination of natural gas, renewables, battery energy storage systems, and potentially keeping coal plants running longer than anticipated. Global demand for liquefied natural gas (LNG) remained strong, thus regional exporters operated near capacity and contacts described renewed interest in LNG export plant development. Gulf of Mexico deepwater oil and gas production projects continued to ramp up, a trend that is expected to continue into 2025.
Agriculture
Demand for agricultural products declined modestly over the reporting period. Cattle and beef prices remained historically strong amid limited supply but declined somewhat from recent highs. Demand for row crops declined further. Domestic demand for dairy was little changed, but global demand softened, resulting in lower prices in recent weeks. However, seasonal demand and supply constraints from new cases of avian flu drove up the price of table eggs. Demand for poultry was steady, while demand for timber remained low. Many southeastern farmers struggled to rebuild after hurricanes.
For more information about District economic conditions visit: https://www.atlantafed.org/economy-matters/regional-economics.