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Executive Cotton Update

U.S. Macroeconomic Indicators & the Cotton Supply Chain


October 2017

Macroeconomic Overview: The Federal Reserve held a meeting in late September. Announcements made after the meeting indicated that the central bank would begin to unwind its bond holdings in October. These assets were accumulated as part of the "quantitative easing" process designed to increase the money supply and stimulate the economy in the wake of the financial crisis. The Federal Reserve also suggested another increase in interest rates could happen before the end of year, and that three rate increases could be expected in 2018. Both interest rates and the money supply are influential variables for exchange rates, and the U.S. dollar has moved higher in trading since the meeting, reversing the downward trend that has generally been in place since the start of 2017.

In the latest trading, the dollar has moved even higher. Part of the reason for this may come from the acceleration in wage growth described in this month's employment report. Sluggish wage growth has likely been a factor holding inflation at low levels. Wages are related to inflation in a couple of ways. One way is that wages are a cost faced by firms. When wage growth is strong, companies may need to increase prices for the goods and services they offer to consumers to offset the higher costs they are paying. Conversely, when wage growth is slow, as it has been in recent years, there is less pressure on aggregate prices from employment-related costs. Another way that wages relate to inflation is through consumers. When consumers have higher incomes, they can spend more. As they spend more, they can bid up prices. For both of these reasons, if sustained, the acceleration in wage growth described in the latest employment report could lead to an acceleration in inflation. In turn, this can make further increases in interest rates more likely, and may lead to further increases in the dollar's relative value.

Employment: The Bureau of Labor Statistics emphasized that their payroll (monthly job count) data were affected by the two large hurricanes that swept through Texas and Florida, but suggested that the unemployment rate was not. This is due to differences in the way the data are collected. Employers report the number of employees who are paid in the payroll figures. As a result, employees who have jobs but were not able to attend work because of the storms, and therefore were not paid, would not be counted as employed in the job growth data. This differs from the data collected for the unemployment rate, which are derived from surveys of households. In this survey, the payment criteria does not apply, and households that report having a job (regardless of wages being paid during the period of time covered by the survey) are simply considered to have a job.

Due in part to the hurricanes' effect, the U.S. economy is estimated to have lost 33,000 jobs in September. This represents the first monthly decrease since September 2010. Revisions to previous estimates pulled the figure for July down from +189,000 to +138,000 (-51,000) and increased the figure for August from +156,000 to +169,000 (+13,000). The average monthly gain in payrolls has been 148,000 in 2017. Over the same time period last year, job growth averaged 200,000.

The unemployment rate decreased, falling from 4.4% to 4.2%. The current reading is the lowest since 2000 (the low point reached in the period of economic expansion between 2001 and 2007 was 4.4%). Initial claims for unemployment insurance, a proxy for layoffs, climbed in early September, but remain near the lowest levels since the early 1970s. Wage growth increased in September. The latest reading indicates that average hourly wages last month were 2.9% higher than one year ago. This represents an improvement relative to the levels near 2.5% that were maintained throughout the spring and summer.

Consumer Confidence & Spending: The Conference Board's Index of Consumer Confidence decreased marginally in September, dropping from 120.4 to 119.8. Readings continue to be strong and rank among the highest on record.

The latest seasonally-adjusted data for consumer spending indicate that U.S. consumers spent 0.1% less in aggregate in August than they did in July. Year-over-year, overall spending was 2.5% higher. Spending on apparel also declined month-over-month in August (-1.1%), representing the second consecutive decrease. Year-over-year, spending on apparel was 1.1% higher.

Consumer Prices & Import Data: The consumer price index for apparel increased slightly for the second consecutive month in August, rising from a reading of 118.4 to 118.7. Despite some upward and downward movement, retail apparel prices have been essentially unchanged since 2014. Recent values are about 4% lower than they were in late 2013, when they reached their post-fiber-spike peak.

Average prices per square-meter equivalent (SME) of cotton-dominant apparel imports increased slightly monthly-over-month in seasonally-adjusted terms (from $3.26/SME to $3.28/SME). Current costs per SME are near the lowest recorded outside of the financial crisis. Despite low costs, import volumes have been restrained. Imports in terms of SME were 2.0% lower than one year ago. Year-to-date (January-August), imports of cotton-dominant apparel are 2.4% lower..

  • Executive Cotton Update

  • US Macroeconomic Data

  • Daily Cotton Price Data

  • GDP Growth
    Interest Rates

  • ISM Indices

  • Leading Indicators
    Consumer Conf.

  • Employment

  • Housing

  • Industrial Production

  • U.S. Yarn Exports
    Polyester PPI

  • Consumer Spending

  • Inventory/Sales
    Consumer Prices

  • Weighted Index

  • The Americas

  • U.S. Balance Sheet
    Fiber Prices


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