Charlotte Chapter August Meeting!
Economic Outlook: Resilient, at Least for Now
Presented by Matt Martin, Regional Executive, Federal Reserve Bank of Richmond
- The economy remains resilient, but growth is moderating. Real GDP grew at an annualized rate of approximately 1.5% in the second quarter of 2026, with Federal Reserve projections indicating continued modest growth.
- Businesses generally describe demand as “fine.” Most Fifth District companies expect to maintain relatively flat staffing levels, while uncertainty has increasingly become part of normal business planning.
- Consumers are becoming more financially strained. Household spending continues to exceed income growth, the personal savings rate has fallen to approximately 2.7%, and delinquencies—particularly for credit cards and student loans—are elevated.
- Consumer behavior remains uneven across income levels. Lower-income households continue to face greater pressure, including delayed bill payments, reduced savings and postponed major purchases, while higher-income consumers remain more resilient.
- National employment growth has weakened considerably. Payroll gains slowed throughout the spring and turned negative in July, while labor-force participation declined to approximately 61.5%. However, unemployment remains low by historical standards.
- The Carolinas continue to outperform much of the Fifth District. North Carolina and South Carolina have experienced some of the region’s strongest employment growth, with several Carolinas metropolitan areas among the leading job-growth markets.
- Charlotte remains heavily influenced by financial services. Mecklenburg County continues to rely significantly on finance, insurance and real estate—commonly referred to as FIRE-sector employment—which represents approximately 13% of local jobs.
- North Carolina still has more demand for workers than available labor. This ongoing imbalance presents challenges for employers but also reflects the relative strength of the state’s economy.
- Productivity is helping support economic growth despite limited hiring. Business-sector output per worker has increased at a stronger pace since late 2022 than during the pre-pandemic period, helping explain how GDP can grow without substantial employment gains.
- Artificial intelligence and infrastructure investments are driving nonresidential construction. Data centers and energy projects now represent an increasingly large share of private nonresidential construction activity.
- Inflation remains a concern. Multiple components—including housing, services, goods, food and energy—are contributing to inflation. Core personal consumption expenditures inflation accelerated to approximately 3.7% in June, remaining well above the Federal Reserve’s 2% goal.
- Energy and supply-chain pressures could complicate the inflation outlook. Oil prices remain elevated, global oil inventories are near annual lows and supply-chain pressures have begun rising again.
- Housing affordability continues to favor renting. The presentation showed an average apartment asking rent of approximately $1,799 per month compared with an estimated monthly mortgage principal-and-interest payment of approximately $2,199. This gap may continue shifting household preferences toward multifamily rental housing.
- Rental inflation may continue to ease. New-tenant rent growth suggests that the housing component of inflation could decline further, even as overall inflation remains elevated.
- Interest-rate policy is approaching a neutral range. The current federal funds rate is near policymakers’ estimates of a level that neither significantly stimulates nor restricts economic activity. However, short- and long-term rates continue to diverge, with longer-term borrowing costs remaining elevated.
Overall Message
The economy remains stronger than many expected, particularly across the Carolinas, but several risks are becoming more pronounced. Slower job creation, declining savings, consumer credit stress, persistent inflation, elevated long-term interest rates and rising supply-chain pressures all warrant caution. Charlotte and North Carolina continue to benefit from strong regional employment, financial-services activity, infrastructure investment and sustained demand for workers.
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