Macroeconomic Overview: The U.S. economy continues to add jobs, but even with the unemployment rate low, wage growth has been limited. The rate of growth in wages was trending higher between late 2014 and early 2017, with year-over-year increases rising from levels near 2% to those approaching 3%. Since the spring, the trajectory turned lower, with recent gains near 2.5%.
About the same time that wage growth began slowing, the rate of inflation moved higher. In much of 2015 and 2016, year-over-year increases in aggregate prices were commonly below 1%. In the second half of 2016 and throughout 2017, the inflation rate has been between1.5% and 2.5%. In combination, weaker wage growth and stronger inflation imply reduced discretionary income, and that has likely been a factor holding back consumer spending. With consumer spending representing nearly 70% of U.S.GDP, this can also be considered a factor holding back the overall rate of U.S. economic growth.
While U.S. economic growth is generally expected to remain positive but sluggish, it is worth noting that for the first time since the recession, all of the world's largest economies (all 45 members of the Organization of Economic Cooperation, the OECD) are expected to expand in 2017, and most are expected to enjoy accelerated growth in 2018. The synchronization of growth can contribute to a virtuous cycle, where improved economic activity, demand, and order placement in one country supports increased economic activity, demand, and order placement in other countries. At the same time, increased demand can lift prices. When the benefits from higher prices are passed through supply chains, they can help lift wages, but also reduce spending power. Higher prices can also be expected to create more room for central banks to lift interest rates from the extremely low levels that have been mostly maintained since the recession.
Employment: The U.S. economy is estimated to have added 156,000 jobs in August. Revisions to earlier numbers indicated that job growth in previous months was lower than previously determined (-41,000 in total). June's figure was revised down from +231,000 to +210,000. July's figure was revised down from +209,000 to +189,000. The average over the past three months is +185,000. The twelve month average increase is +175,000.
The unemployment rate was marginally higher in August (4.4%) than it was in July (4.3%), essentially maintaining the lowest levels since 2001. The slight increase was a result of slightly more people joining the work force. Initial claims for unemployment insurance, a proxy for layoffs, continue to hold to their lowest levels since the early 1970s, when the total number of employees in the U.S. was less than half of what it is currently. Wages increased at a 2.5% rate year-over-year, which is equal to the levels experienced since April.
Consumer Confidence & Spending: The Conference Board's Index of Consumer Confidence increased for the second consecutive month in August, rising 2.9 points to a value of 122.9. Consumer optimism ranks among the highest on record.
Overall consumer spending increased 0.3% month-over-month and 2.7% year-over-year in July (latest available data). While this represents healthy growth, the rate of increase thus far into 2017 is nearly a full percentage point behind the average level registered in 2015 (the average rate of growth in overall spending in 2016 was 2.7%).
Spending on apparel was 0.4% lower month-over-month in July, but was also 3.1% higher year-over-year. The average rate of growth year-over-year is 2.1%. In 2016, the average annual rate of growth was 2.0%. In 2015, the average was 4.3%.
Consumer Prices & Import Data: After four consecutive months of decreases, retail apparel prices increased slightly in July, rising 0.7% month-over-month. Year-over-year, retail apparel prices were 0.8% lower in July. Seasonally-adjusted prices per square meter (SME) of imported cotton-dominant apparel were flat in July (stable month-over-month at $3.25/SME). Excluding a slight dip in November and December, over the past twelve months, average sourcing costs have been generally stable with average import costs holding to the lowest prices recorded outside of the 2008/09 recession. Despite low sourcing costs, import volumes have been flat to lower. Year-over-year, in terms SME, cotton-dominant apparel imports were 3.7% lower for the twelve month period ending in July. Over the same time period, apparel imports of all fibers were 0.1% lower.