U.S. Macroeconomic Indicators & the Cotton Supply Chain
March 2019
Macroeconomic Overview: Due to the partial government shutdown, there was a delay in the release of figures for U.S. GDP growth (fourth quarter estimates and 2018 calendar year estimates). Numbers initially scheduled to be released in late January were released in late February. The recently published estimates indicate that growth in the fourth quarter was 2.6% and that growth in all of 2018 was 2.9% (real terms). For comparison, in the third quarter of 2018, GDP growth is estimated to have been 3.4% and annual growth in 2017 was 2.2%.
Quarter-over-quarter, slower growth in the fourth quarter was primarily a result of a deceleration in inventory accumulation, consumer spending, and government outlays. Year-over-year, the pickup in growth in 2018 was primarily a result of accelerated consumer spending, investment, and government spending.
Overall consumer spending in the fourth quarter, approximating the holiday sales period, was 2.8% higher year-over-year (was 3.9% in Q4 2017). Over the same time period, spending on apparel was up 3.7% year-over-year (was 3.4% in Q4 in 2017). Consumer apparel spending was 4.1% higher in 2018 (was 2.0% in 2017), representing the strongest annual growth since 2011.
The outlook for future economic and spending growth has turned more pessimistic. The decrease in optimism is demonstrated through policy changes made by the world’s largest central banks. The Federal Reserve has made preparations to stop its unwinding of holdings built up after the financial crisis (these holdings were acquired as part of its quantitative easing program, the unwinding of these positions has an effect of tightening money supply). This action has been paired with statements by Federal Reserve officials indicating that it would be cautious relative to potential future increases in interest rates. As late as last spring, the Federal Reserve was taking an aggressive stance on interest rates, so recent announcements represent a significant shift in a relatively short amount of time.
The U.S. is not alone in signaling changes to monetary policy. After signaling tightening last year, the European Central Bank (ECB) recently announced it would hold interest rates at levels below zero through the end of 2019 and would facilitate low interest loans to member banks. This followed the release of forecasts from the ECB that cut projected economic growth in 2019 from 1.7% (December estimate) to 1.1%. China’s central bank announced support for its financial institutions in January, and there is speculation that China may make a move to decrease interest rates this year.
Employment: TThe U.S. economy is estimated to have added 20,000 jobs in February. This was the lowest rate of growth since September 2017. Revisions to previous months’ estimates were positive. The figure for December was increased from +222,000 to +227,000. The figure for January was increased from +304,000 to +311,000. The average monthly increase in payrolls for the past twelve months is 209,000. One year ago, the twelve-month average was 173,000.
The unemployment rate decreased in February (from 4.0% in January to 3.8%). This was partially attributed to the return of federal workers and contractors after the shutdown. Average wages increased 3.4% last month. This is the strongest rate of growth since the financial crisis. Wage growth has trended higher since the fall of 2017. Since August, wage growth has averaged over three percent. In 2016 and 2017, wage growth was consistently near 2.5%. Between 2011 and 2015, wage growth was near 2.0%.
Consumer Confidence & Spending: After three consecutive monthly decreases, the Conference Board’s Index of Consumer Confidence surged in February, rising 9.7 points to 131.4. This was the strongest monthly increase since 2015. The current value is below the post-financial-crisis highs registered this fall, but nonetheless ranks among the highest readings on record.
Overall consumer spending decreased month-over-month in December (-0.6%), but increased year-over-year (+2.2%). Consumer spending on apparel also decreased month-over-month (-2.4%) but increased year-over-year (+1.6%). In December, the rate of year-over-year growth in spending on garments was the lowest in 2018. However, it should be noted that year-over-year comparisons for apparel spending have become more difficult. Beginning in November of 2017 there was an acceleration in spending. Since then, the average year-over-year increase in apparel spending has been over 4%. This is nearly double the long-term average.
Consumer Prices & Import Data: Retail prices for apparel were 0.7% higher month-over-month, but 0.5% lower year-over-year in January. Average sourcing costs for cotton-dominant apparel imports were 1.3% lower month-over-month (seasonally-adjusted) but 2.2% higher year-over-year in December. For the 2018 calendar year, the volume of cotton-dominant apparel imports was 0.9% higher.
