U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview
The labor market continues to show signs of improvement, with job growth in June estimated to be the strongest in nearly a year. Accumulated savings, rising confidence, and lower COVID case numbers suggest that consumer spending should be strong throughout the summer and support GDP growth in the third quarter.
Inflation has emerged as a concern. A wide range of commodity prices increased significantly over the past twelve months. Transportation bottlenecks have increased costs of getting commodities and finished goods to markets. Employers are reporting difficulty in finding workers and may need to boost wages to attract talent.
If the Federal Reserve chooses to move away from its current set of stimulative policies, impacts could be expected for both markets and the growth outlook. The Federal Reserve follows a dual mandate, requiring officials to maintain inflation near two percent while pursuing full employment. The net change in jobs since the pandemic is -6.7 million, and 3.4 million people have left the workforce. With millions still out of work, a priority has been the employment-related mandate. Current year-over-year rates of inflation are being affected by comparison against the worst of the COVID-affected months. Those distortions may cause the Fed to wait for more data before beginning a reversal of policy direction.
Employment
In June, the U.S. economy was estimated to have added +850,000 jobs. This represents the strongest monthly increase since August of last year. Revisions to existing figures for April (-9,000 to +269,000) and May (+24,000 to +583,000) were mixed, but slightly net positive. Over the past twelve months, job growth averaged +660,000.
The rate of job loss continues to ease. The latest value for initial claims for unemployment insurance set a new post-pandemic low of 364,000 claims/week. This is less than half the average over the past twelve months (826,000).
The unemployment rate was essentially unchanged last month (rose from 5.8% to 5.9%). The labor force increased slightly in June (+151,000 workers) and was +1.3 million workers higher year-over-year.
Consumer Confidence & Spending
The Conference Board’s Index of Consumer Confidence posted a solid increase month-over-month in June (+7.3 points, from 120.0 to 127.3). The index remains below levels before COVID (132.6 in February 2020) but is above the long-term average near 93.
Overall consumer spending was down slightly month-over-month in May (-0.4%). This followed a slight increase in April (+0.3%) and a robust increase in March (+4.4%). A net result through these few months is that the gain in March was generally maintained. Year-over-year comparisons are distorted because many U.S. states were under general shutdown orders one year ago. Year-over-year, overall spending was up +16.4% in March, down -0.9% in April, and down -1.0% in May. In February, before year-ago comparisons against shutdown months started, overall spending was down -1.1%.
The pullback in spending on consumer services has weighed on overall spending since the onset of the pandemic in the U.S. Spending on consumer goods, like clothing, has fared better. In all but one month since the pandemic, consumer spending on clothing outperformed spending overall. However, spending growth on apparel has been volatile. There was strong month-over-month growth in January and March (+10.2% and +16.4% respectively), but there have been contractions in other months in 2021 (-4.2% in February, -0.9% in April, and -1.0% in May). Year-over-year, growth was +62.0%, +107.2%, and +50.0% between March and May (months of most severe COVID-related shutdowns). In January and February (pre-COVID comparisons), year-over-year spending on apparel was up +4.6% and +1.1%.
Consumer Prices & Import Data
Retail prices for apparel increased month-over-month in May (+1.1%). Figures for year-over-year changes in prices are also affected by comparison against the most severe months of COVID-driven shutdown. In May, average prices were +5.1% higher than one year ago. Last spring, the accumulation of inventory resulting from store closures resulted in widespread discounting.
Average import costs for cotton-dominant apparel shifted higher in the past two months of available data. In March 2021, the landed cost of goods set a record low (data back to 1989) in cost per square meter equivalent (SME). The deflation in sourcing costs stood in contrast to rising fiber and yarn prices over the past twelve months. Those upstream pressures, along with competition for capacity, could be pulling import costs higher. The latest value ($3.13/SME for May) is 6% higher than two months ago (seasonally adjusted data). It remains well below the values near $3.40/SME that were common before COVID but can be expected to continue to rise in coming months.