U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview
Even a few weeks into the process of reopening, several indicators are signaling that the worst of the U.S. economic contraction may already be in the past. In most instances, data are describing smaller declines rather than expansion. However, some statistics have shown outright growth.
Examples of data streams posting both smaller declines and growth come from the labor market. In weekly unemployment insurance data, the number of initial claims (representation of the number of workers just laid off) has been decreasing since the end of March. The reduction from a peak of 6.7 million in week-ending March 28 to the current figure of 1.9 million (May 30) is substantial. Nonetheless, the current value remains well-above anything experienced before the COVID-19 outbreak (the worst weekly value before the pandemic was 695,000 in 1982).
Another sign of encouragement from the labor market comes from continuing claims for unemployment insurance (workers laid off in previous weeks who have been unable to return to work). In data for week-ending May 9, 24.9 million workers filed continuing claims. In figures released for the two weeks since then, that number has dropped to levels near 21.0 million. While this suggests the peak has passed, the volume remains staggering. Prior to the outbreak, in early 2020, the total number of continuing claims was only 1.7 million. During the last recession, the peak level for continuing claims was 6.6 million
A data source that has reversed course and already begun posting improvement is monthly payroll data. After a record decline in April, there was job growth in May. The unemployment rate also decreased last month. Both are encouraging signs for the labor market, but the Bureau of Labor Statistics added a special note regarding data quality in this month’s release. That note highlighted a decrease in response rates and the challenge of classifying furloughed workers.
Consumer confidence has been shaken but appears to have stabilized. After a record decline in April, the Index of Consumer Confidence was stable month-over-month in May at a level well above those during and after the 2008-09 financial crisis. It remains to be seen how consumer spending will respond over the long term.
Stimulus measures lifted personal income nearly 12% year-over-year in April. With widespread uncertainty about the labor market and future income, most of that additional money was saved. The savings rate climbed to a record 33% in April (year-over-year, data back to 1959), and is nearly double the previous record (17%, set in 1975). Overall consumer spending was down a record 17% year-over-year in April. To the extent that savings can be spent as the economy moves deeper into the process of reopening will influence how quickly overall economic activity will recover. The root cause of the crisis is medical. A lasting resolution to the medical emergency, and the extent that it can generate confidence among the public, would boost confidence and spending.
Employment
The U.S. economy is estimated to have gained 2.5 million jobs in May. In April, job losses were 20.7 million. The unemployment rate decreased from 14.7% to 13.3% from April to May.
Consumer Confidence & Spending
The Conference Board’s Index of Consumer Confidence was flat month-over-month in May (from 85.7 to 86.6). The current value is the lowest since 2014 but is above values experienced during the financial crisis. During the financial crisis, the index dropped to a reading of 25.3 in 2009 and remained below the current value through 2014.
Overall consumer spending fell 13.2% month-over-month and was down 17.3% year-over-year. Spending on clothing was down 27.5% month-over-month and 48.0% lower year-over-year.
Consumer Prices & Import Data
The CPI for garments was decreased by 4.9% month-over-month and was down 6.5% year-over-year. The current level for the CPI is the lowest since 1987.
The average import cost per square meter equivalent (SME) of cotton-dominant apparel was 1.5% lower month-over-month (seasonally-adjusted) and was down 6.5% year-over-year.
In terms of square-meter equivalence, U.S. apparel import volumes (all fiber content) were down 41% year-over-year in April. In March, volumes were down 13%. Tariffs had been affecting imports before the coronavirus, and imports year-over-year from September-February were down 10% (U.S. tariff increases on Chinese apparel went into effect in Sep. 2019). Imports from China have suffered to a greater extent (-24% Sep-Feb, -42% in March, -48% in April).
For cotton-dominant apparel, imports were down by similar percentages globally (-9% Sep-Feb, -10% in March, -41.4% in April), but decreases were steeper for shipments from China (-32% Sep-Feb, -46% in March, -56% in April).
Read the full Executive Cotton Update: June 2020.