U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview
The International Monetary Fund (IMF) will release an updated set of estimates for global economic growth in the first half of October (after this publication’s release). Current IMF figures (released July 2022) already suggest that countries accounting for one-third of the world economy will contract in consecutive quarters either in 2022 or 2023. Inflation is a global issue. The rise in European energy prices, a slowdown in the Chinese property market, and climbing interest rates in the U.S. were cited as additional sources of concern in preliminary remarks by the IMF’s director ahead of October’s release. While reiterating the risk of downside revision, the IMF official expects a loss in global output around $4 trillion between now and 2026 (for context, $4 trillion is about the size of Germany’s economy, the world’s fourth largest market).
Another major development in the global economy has been a steep increase in the value of the U.S. dollar. As U.S. interest rates increased relative to those in other markets over the past several months, it made investment in dollar-denominated assets more attractive and the resulting influx of money caused the dollar to strengthen. For emerging markets, this can have several adverse effects. Emerging market debt is often expressed in dollar terms. When the dollar becomes stronger relative to the currency of a country with debt, payments become more expensive in domestic terms. This exchange rate issue is compounded by the rise in interest rates, which can directly impact debt payments. Emerging markets have been an engine of global economic growth in recent decades, but mounting financial pressures may push some countries toward default.
Employment
The U.S. economy was estimated to have added +263,000 jobs in September. The existing figure for July increased +11,000 positions to +537,000. The existing figure for August was unchanged at +315,000. The twelve-month average for job gains is +474,000.
The unemployment rate decreased from 3.7% to 3.5%. Since the end of 2021, the unemployment rate has been below four percent. In the history of U.S. unemployment data (since 1948), there have only been three other periods (1950-53, 1965-69, 2018-19, and the present) where the unemployment rate persisted below four percent.
Wage growth has likely been pulling more workers back into the economy. Compared to early months of the pandemic, the labor force participation rate has increased by one percentage point (from 61.4% in the summer of 2020 to 62.4% most recently). Despite the improvement, the ratio of people wanting to work relative to the entire population is about half a point lower than the level before COVID (average near 63.0% from 2014 through 2019).
Since June 2020, the rate of wage growth has generally been between 5.0% and 5.5%. The latest value (September) was 5.0%. This is near the lower end of the range established since COVID. There was a sharp (10% month-over-month) downturn in job openings in August (latest figure available). If openings continue to decline, it could create slack in the labor market and inhibit wage growth. Wage growth often correlates with inflation. Slower wage growth could diminish general price pressures throughout the economy but could come at the expense of slower consumer spending.
Consumer Confidence & Spending
The Conference Board’s Index of Consumer Confidence increased for a second consecutive month in September (+8.3 points in August, +4.4 points in September). The current value (108.0) is the highest since April. Since COVID, the index ranged between 87.1 (February 2021) and 128.9 (June 2021). The long-term average is 93.8 (since 1970).
In August, overall consumer spending increased marginally (+0.1%) month-over-month. Year-over-year, overall spending was +1.8% higher. Consumer spending on garments was -0.4% lower both month-over-month and year-over-year in August. Every month between June 2020 and February 2022, the growth rate in consumer spending on apparel exceeded the growth rate in overall spending. In every month since March 2022, the overall rate has been higher than the rate of spending on apparel.
Consumer Prices & Import Data
Retail prices for garments have been increasing more slowly than the overall inflation rate. Relative to averages in 2019 (pre-COVID), the CPI for apparel was +2.2% higher in August, while the overall CPI was 15.8% higher.
Import costs have been rising. The latest seasonally-adjusted value per square meter equivalent (SME) of cotton-dominant apparel was $4.04/SME. This is the highest cost on record (data since 1989). The posting of a record high represents a sharp reversal relative to import costs during the pandemic that nearly set record lows. Seasonally-adjusted import costs for cotton-dominant apparel were below $3.00/SME in late 2020 and early 2021. Imports during these months likely included deliveries resulting from contracts signed during the most challenging months of the pandemic 8-10 months earlier.