Executive Cotton Update
U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview: After two months of stronger than expected job gains, the latest figure was disappointing. In August, the fewest jobs were added since January. The resurgence in COVID has been blamed for the weakness, and it remains unclear what direction the pandemic might take in coming months. More Americans are getting vaccinated each day, but millions of students ineligible for vaccines have returned to school.
The latest job data followed two months when growth averaged more than one million new positions per month. Consumer confidence has faltered but remains well above average. Total consumer spending decelerated in July, but spending on clothing has been strong. Wages are growing, which can support further spending growth, but there are fears of inflation.
In both June and July, the overall rate of inflation was over five percent year-over-year. This is more than double the level of two percent that the Federal Reserve targets. However, lockdown orders were lifted a little more than one year ago. The collapse in demand that occurred under lockdown pulled prices lower. Prices did not immediately recover. This has meant that recent data are being compared against distorted figures, which creates a challenge for policymakers who want to support growth but are wary of inflation.
Due to inflation concerns, the Federal Reserve appears ready to slow some of its stimulus in the relatively near future by reducing the amount of securities it has been purchasing each month. Other changes are emerging through fiscal policies. Federal supplemental unemployment benefits expired early this month, and Congress is considering two major spending bills. While the spending bills and the expiration of supplemental unemployment benefits may have some impact on consumers, a shift in Federal Reserve policy may shake financial markets.
Employment: In August, the U.S. economy was estimated to have added +235,000 jobs. Revisions to figures for previous months were positive, with the estimate for June rising +24,000 to +962,000 and the estimate for July rising +110,000 to +1.1 million. The 12-month average for job gains is +503,000. Since COVID, there has been a net loss of -5.3 million positions.
The unemployment rate fell -0.2 points to 5.2%, setting a new post-COVID low. The worst month for employment after COVID was April, when the unemployment rate climbed to 14.8%. It has taken 16 months since April 2020 to reach the current level. During the recession that followed the financial crisis, the unemployment rate peaked at 10.0% in October 2009. It then took 69 months for unemployment to fall to 5.2%.
Despite the weakness in job growth, layoffs continue to trend lower. The latest figure for initial claims for unemployment insurance is the lowest since COVID. Tightness in the labor market appears to be contributing to increases in income. Average hourly earnings increased +4.3% year-over-year in August. Wages never increased over four percent between the financial crisis and the onset of COVID.
Consumer Confidence & Spending: After slipping a bit in July, the Conference Board’s Index of Consumer Confidence suffered its largest monthly decline since the beginning of the pandemic in August (-11.3 points to 113.8). Even though the index is a stair-step lower than the levels near 130 that were posted over the summer, the long-term average is 93. Correspondingly, the current value suggests consumers remain relatively optimistic.
Overall consumer spending decreased 0.1% month-over-month in July. Spending on apparel decreased -2.1%. Year-over-year comparisons are affected by the sharp contraction that occurred with COVID-driven lockdowns a little more than one year ago. Overall spending was up +7.6% relative to July 2020, and spending on clothing was up 21.1%. Relative to July 2019 (pre-COVID), overall spending was up +3.8% and spending on apparel was up +23.3%.
Consumer Prices & Import Data: Retail prices for apparel increased 0.3% month-over-month in July. Year-over-year, clothing prices were 4.1% higher. Nonetheless, the current value for the CPI for apparel (113.5) is still below values before COVID (115.7 in February 2020).
Average prices for cotton-dominant apparel imports were unchanged month-over-month in July. In terms of USD per square-meter equivalent, the average cost was $3.14/SME. In March 2021, the average cost of cotton-dominant apparel goods set a record low (data back to 1989, seasonally adjusted). The latest value is 6.4% higher than the low set in March ($2.95/SME) but is also 7.7% below the levels near $3.40/SME that were common before the pandemic.