U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview
Uncertainty surrounding the trajectory of U.S. economic growth persists. The labor market continues to add jobs, and wages continue to rise at rates higher than those experienced in the decade following the financial crisis. Inflation also remains higher than the rates experienced in the decade following the financial crisis. As a result, the Federal Reserve has continued to boost interest rates (the Federal Funds rate was increased another 0.25 points in late March).
There have been fears of a recession for some time, and those concerns have yet to be realized. The continued strength of the labor market and consumer spending are giving increasing support to ideas that a “soft landing” may be possible despite the Federal Reserve lifting interest rates from zero to nearly five percent in the span of about one year (rate increases began in March 2022). Stresses associated with rate increases contributed to the recent turmoil in the banking sector, and there are concerns that the issues could spread into other segments of the economy. The effects of higher interest rates tend to be lagged, and it remains unknown what the complete eventual impact might be.
Consumer spending, which represents the majority of U.S. economic activity, has proven robust. Overall spending is up 9.7% relative to the average in 2019. Spending on apparel is up 25.7%. A tight job market and savings accumulated during the pandemic have supported consumers’ willingness to spend. However, wage growth has not kept up with inflation since the first half of 2021. Savings rates have plummeted from record highs with stimulus payments (reaching levels over 25%) to readings below those witnessed in the decade after the financial crisis (was above five percent between 2010 and early 2020, currently below five percent).
Employment
The U.S. economy is estimated to have added +236,000 jobs in March. While this figure could have been considered reasonably strong before COVID, it ranks as the smallest monthly addition since December 2020. Revisions to figures for previous months were mixed. The value for January fell -32,000 to +472,000. The value for February rose +15,000 to +326,000. The current twelve-month average is +345,000 jobs per month.
The unemployment rate decreased from 3.6% to 3.5% between February and March. Since January 2022, levels have held below four percent and rank among the lowest on record. With continued job growth, a factor that has prevented the unemployment rate from falling even lower has been the entry of more workers into the economy. It is estimated that 480,000 more people wanted to work in March than in February. Year-over-year, the Bureau of Labor Statistics indicated that there were 2.4 million more workers. The proportion of people in the labor force has also been rising. The labor participation rate collapsed with the onset of COVID, but the current value (62.6%) is within the range of values experienced in the five years before the pandemic.
Average hourly wage growth has been trending lower since March 2022, when they reached a post-outbreak peak of 5.9%. All the readings since October 2022 have been below five percent. The latest value (March) was 4.2%. The overall rate of inflation was 6.0% in March.
Consumer Confidence & Spending
After two monthly decreases, the Conference Board’s Index of Consumer Confidence increased marginally in March (+0.8 points to 104.2). The index continues to hold levels above the long-term average (near 93) but below the post-COVID peak of 128.9 (June 2021).
After a substantial 1.5% month-over-month increase in January, overall consumer spending decreased -0.1% month-over-month in February and was up 2.4% year-over-year. Spending on garments also surged in January (+3.5% month-over-month) and experienced a slight pullback in February (-0.6% month-over-month). Year-over-year, overall spending was up 2.5% in February, and spending on clothing was up 4.4%.
Consumer Prices & Import Data
Retail prices for apparel increased 0.7% month-over-month in February. Year-over-year, the CPI for clothing was up 3.9%. Relative to the average in 2019, before the pandemic, retail apparel prices were 4.4% higher in February.
In February, average import costs per square-meter equivalent (SME) of cotton-dominant apparel were $4.04 in seasonally-adjusted terms. This is down from the recent peak of $4.32/SME in November, but it is well-above levels before the pandemic (averaged $3.36/SME in 2018 and $3.45/SM in 2019) and significantly higher than the post-COVID low marked in March 2021 ($2.99/SME).