U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview
The Bureau of Economic Analysis estimates that the U.S. economy expanded at a 6.4% annual rate in the first quarter. Since the recovery began, annualized growth rates have been +33.4% (Q3 2020) and +4.3% (Q4 2020). For the entire calendar year, the International Monetary Fund (IMF) estimates that the U.S. will grow 6.4% year-over-year. If realized, this will be the strongest GDP growth for the U.S. in nearly 30 years.
A major reason why U.S. economic activity accelerated in the first quarter was consumer spending. Consumer spending increased at a 7.0% annual rate in the first quarter. This coincided with the delivery of the latest round of stimulus payments and the resulting boost to income. The savings rate remains elevated and was over 25% in March. Officials from both the Federal Reserve and the Treasury Department suggest that interest rates will remain low for the foreseeable future, and there is discussion of another round of fiscal stimulus. All of these factors suggest U.S. GDP growth and consumer spending will remain strong in 2021.
Another critical element of that outlook is the expectation that COVID will continue to be brought under firmer control. To date, 57% of the adult U.S. population has had at least one dose of a vaccine, and nearly one-third are fully vaccinated. Variants may be a threat, but further progress towards complete reopening appears like it will be another source of support for U.S. economic growth.
In other countries, the outlook is less clear. Most notably, India has been setting records for daily diagnoses and deaths. COVID has also been flaring in Latin America and Turkey. Several Asian countries have imposed new restrictions on movement and consumer activity. Until COVID’s spread is definitively controlled globally, it remains a threat to world economic growth.
Employment
In April, the U.S. economy was estimated to have added +266,000 jobs. This represents the fourth consecutive month of job growth. While the addition in April was smaller than the gains posted in February (+536,000) and March (+770,000), it was higher than the value from January (+233,000). Revisions made to figures for February (+68,000) and March (-146,000) were mixed. The net change in jobs since the pandemic hit in March 2020 is -8.2 million.
While job growth has slowed, job losses have also decreased. Since the onset of the pandemic, weekly counts of initial claims for unemployment insurance were consistently above the peak from the 2008-09 recession (665,000). In recent weeks, initial claims have finally begun to fall. In the latest week, initial claims were below 500,000 for the first time since COVID flared in the U.S.
In March, the unemployment rate ticked slightly higher, from 6.0% to 6.1%. This was partially due to a 430,000 person month-over-month increase in the number of people wanting to work. The current unemployment rate is 8.7 points lower than the post-pandemic high (14.8% in April 2020) but is 2.6 points higher than the value before COVID (3.5% in February 2020).
Consumer Confidence & Spending
The Conference Board’s Index of Consumer Confidence increased sharply for a second consecutive month in April, rising from 109.0 to 121.7. The index remains below values before COVID (132.6 in February 2020) but is well above the long-term average near 93.
After a month-over-month decrease in February (-1.2%), overall consumer spending rose 3.6% month-over-month in March (latest month with available data). Year-over-year comparisons are now affected by the collapse that occurred with the onset of COVID. Overall spending in March 2020 was 4.7% lower year-over-year. Overall spending in March 2021 was up 8.5%. Relative to March 2019 (pre-COVID), spending in March 2021 was 3.4% higher.
The figures for spending on apparel have been more volatile. After a strong month-over-month increase in January (+10.2%), clothing spending fell in February (-4.0%) before rising sharply in March (+15.1%). Numbers for year-over-year change are even larger. In March 2020, apparel spending was down 26.1%. In March 2021, the year-over-year change was +60.5%. This volatility can mask the trend of solid growth in clothing demand. Relative to March 2019, clothing spending in March 2021 was up 18.7%.
Consumer Prices & Import Data
Retail prices for apparel decreased month-over-month for the second consecutive month (-0.9% in February and -0.4% in March). Year-over-year, clothing prices were down -3.1%. Clothing prices were moving lower before the pandemic. The average year-over-year decrease in the twelve months ending February 2020 was -1.9%. With COVID, year-over-year changes in prices were a much as -8.7% (May 2020).
Average import costs have also been moving lower. The average cost per square meter (SME) of cotton-dominant apparel was $2.95/SME (seasonally adjusted) in March. Despite increases in fiber and yarn prices, this is the lowest value since 1989.