Cotton Incorporated
Executive Cotton Update
U.S. Macroeconomic Indicators & the Cotton Supply Chain
September 2025
Macroeconomic Overview: A central question for the U.S. economy is whether consumers will continue spending. A factor that has supported spending growth since the recession is the labor market, which was resilient to the surge in inflation and the rise in interest rates. After several years of strength, however, the labor market has been showing signs of softening.
Between 2022 and 2024, the unemployment rate was exceptionally low, consistently holding at levels below four percent. Starting in 2023, unemployment began to shift higher, and it rose above four percent around the middle of 2024. Since then, the rate has not changed much. The latest reading remains low by historical standards (4.3% in August), but it is the highest since late 2021.
Tightness in the labor market, exemplified by low unemployment rates, has supported wage growth. The pace of wage growth has been slowing (3.9% in August, down from the post-stimulus peak of 5.9% in March 2022), but it remains above any of the values registered between the financial crisis and COVID, when wages were commonly growing at less than three percent year-over-year. Despite the deceleration, wage growth has been higher than the overall inflation rate in every month since March 2023. Stronger increases in income relative to prices can help consumer spending.
After trending lower from late 2022 through early 2024, inflation has been holding at levels between 2.5% and 3.0%, with the latest (July) reading coming in at 2.9% (data in terms of the core consumption-price-deflator that the Federal Reserve most closely targets). While this is significantly lower than the levels over five percent that were recorded in the summer of 2022, it is also above the Fed’s official target of two percent.
Since inflation has not moved to levels approaching the Fed’s target, there has been reluctance by central bank officials to lower interest rates. Nonetheless, it is expected that signals from the labor market may prompt the Federal Reserve to lower rates at its next meeting (September 16-17). While the unemployment rate remains low, it has ticked up, and there are other indications that the tightness in the labor market may be easing. Recent job gains have been slower (+22,000 positions in August, the current 6-month average is +70,000, the average in 2024 was +168,000), and, in July, there were fewer job openings than unemployed people for the first time since the pandemic. Concerns about a softening labor market are expected to lead the central bank to decide to cut interest rates at their next meeting, which would be the first rate cut since September 2024.
Employment: The U.S. economy was estimated to have added +22,000 jobs in August. Revisions to previous months were mixed. The figure for June decreased by 27,000 positions, from +14,000 to -13,000. This represents the first month-over-month decrease in positions since December 2020, when COVID was a dominant influence on the economy. The figure for July increased by 6,000 positions, from +73,000 to +79,000. The current 12-month average is +122,000. The current 6-month average is +70,000.
The unemployment rate increased marginally, rising from 4.2% to 4.3%. While only slightly beyond the tight recent range between 4.0% and 4.2% that held values since April 2024, this is the highest value since October 2021. From the start of 2022 through early 2024, the unemployment rate was below four percent.
Year-over-year growth in wages was 3.9% in August. This is within the range between 3.9% and 4.2% that has contained wage growth since March 2024. In a nearly three-year period before March 2024, wage growth was consistently higher than 4.2%, reaching levels as high as 7.0% (March 2022).
Consumer Confidence & Spending: The Conference Board Consumer Confidence Index® did not change much in August (-1.3 points to 97.4). Apart from a dip to 85.7 in April, the index has remained with a range between 95 and 115 for the past four years.
Overall consumer spending accelerated month-over-month in July (+0.3%, from +0.1% in June and -0.2% in May). Year-over-year overall spending was +2.1% higher. This was nearly even with the +2.2% rate of increase in June. Both the rates in June and July were the slowest since early 2024.
Spending on garments increased +0.8% month-over-month in July. This builds on relatively strong increases in May (+1.2%) and June (+0.5%). Year-over-year, spending on apparel was up +5.5%. That annual rate of clothing spending growth is the highest since 2022, when figures were distorted by the recovery after the pandemic. The longer-term average for year-over-year growth in apparel spending is near two percent.
Consumer Prices & Import Data: On a monthly basis, average retail prices for apparel decreased in July (-0.4%). In terms of year-over-year change, the CPI for garments decreased for a fourth consecutive month (-0.5% month-over-month April, -0.7% in May, -0.4% in June, and -0.4% in July). Seasonally-adjusted cotton-dominant apparel imports were flat month-over-month in July at a level above the volume from May but below values over the previous six months.