U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview: This month marks the ninth year of the current U.S. economic expansion, making it the second longest in history. Most macroeconomic indicators suggest the U.S. economy continues to perform, and there are no obvious signs of an impending recession. The labor market continues to add jobs and the unemployment rate has fallen to the lowest level in nearly two decades.
Outside the U.S., economic growth has been less robust. Purchasing manager indexes (PMIs), which are a more contemporaneous measure of aggregate economic activity than GDP (releases of GDP data always lag the present by several months), representing global economic growth have signaled some weakening. Last month, PMIs for Europe posted the lowest readings in more than a year. Recent European political developments cast additional uncertainty on the outlook. In Italy, last month’s election results gave rise to fears that an anti-E.U. government could emerge in the country. In turn, this has been seen as a possible threat to the sustainability of the euro. Combined with expectations that the Federal Reserve will further increase interest rates this year (one increase already occurred in March, two more increases are expected this year), these fears contributed to strengthening of the dollar. Since mid-April, the dollar has gained 5% against the world’s second most-commonly traded currency (the euro). Movement in other exchange rates has been even more dramatic (e.g., Turkey, where the lira has lost 13% against the dollar since early May).
Volatility in exchange rates is a source of uncertainty for trade. The series of announcements regarding the imposition of tariffs around the world is another. Recently, the U.S. indicated it would remove the temporary exemptions that protected Canada, Mexico, and the E.U. from the U.S. decision (initially made in March) to increase tariffs on steel and aluminum imports. In response, Canada, Mexico, and the E.U. have promised to impose retaliatory tariffs on goods they import from the U.S. In addition, the E.U. pledged to launch a complaint against the U.S. in the World Trade Organization (WTO). The WTO is a forum designed to enable international trade, and provides a framework to settle trade disputes. When they join, WTO member countries sign agreements outlining a set of trade-related promises. When these promises are found to be broken, the WTO can issue judgments in support of counter measures. India, which was not one of the group of countries temporarily excluded, has already initiated the complaint process with the WTO against U.S. steel and aluminum tariffs.
Employment: The U.S. economy was estimated to have added 223,000 jobs in May. Revisions to existing figures were mixed, with the number for March increasing from +135,000 to +155,000 and the number for April decreasing from +164,000 to +159,000. In combination, these updates indicated that 15,000 more jobs were added in recent months than previously believed. Year-to-date, monthly job creation has averaged 207,000. Over the same time period last year, job growth averaged 172,000.
The unemployment rate decreased from 3.9% to 3.8% month-over-month in May. This ties the lowest level since 2000, but is otherwise the lowest level since the late 1960s. Year-over-year, the unemployment rate was 0.5 percentage lower, with 2.5 million more people working and 772,000 fewer people unemployed than in May 2017.
Wages increased at a 2.7% annual rate in May. Average gains year-to-date have been 2.6%. Over the same time period last year, wage growth averaged 2.5%. In addition to data regarding job growth, unemployment and wages, the Bureau of Labor Statistics also tracks the number of job openings. For the first time on record (job opening data back to 2000), there were more job openings in the U.S. than unemployed people.
Consumer Confidence & Spending: The Conference Board’s Index of Consumer Confidence increased 2.4 points, to a level of 128.0 in May. Recent values for the index rank among the highest recorded (highest values were those with values over 140 that were registered in the year 2000).
Overall consumer spending increased 0.4% and spending on apparel increased 0.3% month-over-month in April. Year-over-year, growth in overall spending was 2.7% and growth in spending on apparel was 1.6% in April. Year-to-date (January-April), overall spending was 2.6% higher and apparel spending was 2.7% higher. Over the same time period last year, growth in overall spending was 2.8% and growth in apparel spending was 1.6%.
Consumer Prices & Import Data: Retail prices for U.S. apparel increased 0.6% month-over-month and 1.1% year-over-year. Average sourcing costs for cotton-dominant apparel imports decreased 1.1% month-over-month but were 4.4% higher year-over-year.