Macroeconomic Overview: According to the advance estimate from the Bureau of Economic Analysis, the U.S. economy grew at a 1.9% seasonally-adjusted annual rate in the fourth quarter. This represents a slowdown relative to the third quarter, when the economy expanded 3.5%. A major reason for the slower rate of growth in the fourth quarter was a decrease in net exports. Exports were exceptionally strong in third quarter and that helped lift GDP. A pullback in exports slowed GDP growth in fourth quarter. In annual terms, the economy expanded 1.9% in 2016. This was weaker than the 2.4% rate in 2014 and the 2.6% rate in 2015. Reasons for the slower rate of growth in 2016 included a slower rate of investment, slower growth in consumer spending, and a deceleration in state and local government spending.
The IMF released an updated set of forecasts for global economic growth in mid-January. After highlighting uncertainty regarding the implications of possible policy decisions, the IMF suggested that the U.S. economy could grow 2.3% in 2017 and 2.5% in 2018. Both of these projections are higher than forecasts they released in October (+0.1 points for 2017 and +0.4 points for 2018).
Employment: The U.S. economy was estimated to have added 227,000 jobs in January. This was the largest monthly increase since September and was well-above the average for 2016 (+187,000). Contrasting with the strength in January's increase were revisions to figures for November (-40,000, from +204,000 to +164,000) and December (+1,000, from +156,000 and +157,000) that indicated job gains over the past two months were lower than previously estimated.
The unemployment rate increased marginally last month, rising from 4.7% to 4.8%. With continued job gains, the increase in the unemployment rate was driven by an increase in the number of people looking for work (the unemployment rate is a ratio of the number of people with work relative to those who want to work). Since bottoming out in December 2009, the number of people wanting to work has grown by 6.6 million. Over the same time period, the number of people working has grown by 14.1 million. The larger increase in the number of people employed relative to the number of people wanting to work has been reflected in the downward trend in the unemployment rate, which is 5.1 points lower than it was seven years ago.
Wage growth slowed slightly in January. In December, average hourly wages were up 2.8% year-over-year. This is the largest gain since the financial crisis. In January, wage growth was near 2.5%, which is a little below the average it has maintained since late 2015. However, it is well-above the growth rates near 2.0% that were common from 2012 through 2015.
Consumer Confidence & Spending: The Conference Board's Index of Consumer Confidence decreased 1.5 points to a reading of 111.8 in January. Although this value is slightly lower than the level for December, December's figure was the highest since 2001. The number for January is the second highest since the recession.
In December, overall spending (inflation-adjusted) was up 0.3% month-over-month and up 2.8% year-over-year. Spending on clothing increased 0.7% month-over-month and 1.0% year-over-year. In the fourth quarter, which is a proxy for the holiday period, overall spending grew 2.8% year-over-year while apparel spending rose 0.7%. For comparison, overall spending was up 2.6% yearover-year in the fourth quarter last year. Spending on clothing was up 1.9%.
Consumer Prices & Import Data: Average retail prices for apparel declined significantly month-over-month in December (-1.2%). This was likely a reflection of retailer discounting in order to move inventory after a slow start to the holiday sales period. Yearover-year, retail clothing prices were 0.6% lower in December.
In seasonally-adjusted terms, the average import price per square meter equivalent (SME) of cotton-dominant apparel increased 1.4% month-over-month in December. Nonetheless, the current sourcing cost of $3.15/SME is nearly equal to values posted before the price spike. Year-over-year, average import prices were 4.4% lower in December than they were a year ago.
Despite decreases in sourcing costs, the volume of cotton-dominant apparel imports declined in 2016 relative to 2015 (-3.9% in terms of SMEs). Shipments from China were 5.5% lower. There were important increases from other shippers, including Vietnam (+1.8%), Bangladesh (+1.2%), and India (+1.3%). Collectively, these exporters represent the same share of SMEs of cotton-dominant apparel as China (30%), but the declines in arrivals from China as well as most other countries outweighed the gains from these three locations and pulled the global figure for cotton-dominant apparel imports lower. SME volume for apparel imports of all-fibers were also lower in 2016 (-1.1%). At the country level, the most significant changes included declines from China (-1.9%), Honduras (-3.0%), and Cambodia (-14.1%) as well as an increase in shipments from Vietnam (+6.9%).