U.S. Macroeconomic Indicators & the Cotton Supply Chain
September 2020
Macroeconomic Overview: The U.S. economy has significantly improved since the second quarter. Following the record quarter-to-quarter decrease in GDP in the second quarter, a record increase is expected in the third. However, even with the improvement, it is widely expected that it will take years to get the economy back to the level of activity before COVID. The latest International Monetary Fund (IMF) forecasts suggest the U.S. economy will contract -8.0% in 2020.
U.S. consumer spending has improved significantly in recent months. After being down as much as -16.7% year-over-year in April, the latest figures (July) indicate that spending was down only -3.8%. The recovery in spending on apparel has been even stronger, with the level for July nearly even with the value one year ago (-0.4% year-over-year). There are signs that the trend towards improvement may not be steady in later months. Supplemental payments for unemployment insurance expired in July, and consumer confidence has been decreasing since June. Declines after an initial recovery have been experienced in other markets. An example is China, which was the first nation to come out of shutdown. In China, year-over-year rates for overall spending slid between June and July after steadily improving from February to June. Concern about the trajectory of global demand has been linked with recent declines in commodity markets, such as oil, that are sensitive to the outlook for global economic growth.
To support growth, the Federal Reserve recently announced changes in policy. It announced that it will allow the inflation rate to drift above the official target of two percent inflation after periods of lower inflation and slower economic growth. This can lead to a longer period of historically low-interest rates. By keeping borrowing less expensive, a hope is that it will encourage investment and stimulate the economy. By expanding the money supply, however, the central bank may also be allowing for more money to flow into financial markets. These flows likely contributed to recent gains in stock prices that enabled new records for several major U.S. stock indexes – despite the high levels of unemployment and persistently high COVID case numbers.
Employment: The U.S. economy was estimated to have added 1.4 million jobs in August. Last month’s increase was smaller than the increases of 2.7, 4.8, and 1.7 million that occurred in May, June, and July. Outside of those months, the increase in August would have ranked as the largest on record.
The gains made since May, followed two of the three largest monthly decreases on record, with 1.4 and 20.8 million jobs lost in March and April (1.9 million jobs were lost at the end World War II). The net result of change in payrolls since COVID has been the loss of 11.5 million positions. This means that even if the historically strong rate of job growth near one million increases per month is maintained, it will take nearly one year to get the labor market back to where it was in February.
The unemployment rate decreased from 10.2% to 8.4% between July and August. The unemployment rate peaked in April at 14.7%. Before the virus, the unemployment rate was 3.5%. The worst rate during the 2008-09 financial crisis was 10.0%.
The Bureau of Labor Statistics continues to issue a statement indicating that there have been data collection and classification issues. In the latest report, the BLS indicated that the share of responses affected by these issues is much smaller than it was in earlier months, but also stated that approaches to compensate for these issues could lift the unemployment rate by as much as one percentage point.
Consumer Confidence & Spending: The Index of Consumer Confidence decreased for the second consecutive month in August. The current value (84.8) is the lowest since COVID tightened its grip in the U.S. in March (the previous low during the COVID period was 85.7 in April).
Overall consumer spending increased 1.6% month-over-month in July but was 3.8% lower year-over-year. Consumer spending on apparel increased 2.5% month-over-month and was only 0.4% lower year-over-year. Besides footwear, the recovery in clothing spending from April to July (from -43.2% to -0.4%, a swing of 42.8 percentage points) ranks as the strongest among all categories of non-durable goods.
Consumer Prices & Import Data: Retail apparel prices, as measured by the CPI for garments, increased 1.0% month-over-month but were 7.2% lower year-over-year. Average import prices (in terms of USD per square meter equivalent or SME) for cotton-dominant apparel were down 2.9% month-over-month in seasonally-adjusted terms and were down 11.2% year-over-year.
Year-over-year decreases in the volume of U.S. apparel imports (in terms of SMEs) have been getting smaller since May. For apparel imports of all fibers, import volumes were -58.4% in May and -22.0% year-over-year in July. For cotton-dominant apparel imports, volumes improved from -66.8% in May to -19.5% in July. With tariffs applied in September, volumes were down ahead of COVID. Between September 2019 and February 2020, import volumes of apparel of all fibers were down 10.2% and imports of cotton-dominant apparel were down 9.5%.
