U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview: Speculation regarding details discussed and agreed upon at a meeting between President Trump and President Xi on December 1st has been identified as a cause of recent volatility in a range of financial markets. Other than a 90-day delay in the planned increase in tariff rates on a set of U.S. imports from China valued at $200 billion, little has emerged in terms of confirmed results (this planned increase would raise U.S. tariffs another 15 percentage points, from the 10 percentage point increase imposed on the same set of goods in late September to a 25 percentage point increase relative to rates that existed prior to this year’s changes).
Cotton futures were among the markets experiencing volatility, with values being pushed both higher and lower. Prices for the March contract climbed as high as 82 cents/lb immediately after the meeting (from levels near 78 cents/lb ahead of the meeting) before retreating to levels below 80 cents/lb in later trading.
While potential resolution or escalation of the tariff issue has been most strongly associated with recent volatility, questions about the outlook for the global economy may have also been a contributing factor. Concerns about economic growth, notably those in China, have been attributed as a driver for recent decreases in oil prices. Since early October, Brent oil futures (the international benchmark for oil prices) decreased 25%. Another source of concern may be that U.S. Treasury bonds with near-term expiration currently carry a higher rate of interest (yield) than bonds with more distant expiration. This is opposite the normal relationship, and such inversions have commonly preceded U.S. recessions.
Nonetheless, most indicators for the U.S. economy signal growth. The U.S. economy continues to add jobs, wage growth is accelerating, and consumer confidence is near all-time highs. These data, along with a recent drop in gasoline prices, should be encouraging for retailers in the near-term because they are coincident with the important holiday season.
Reports covering the important Thanksgiving weekend indicate sales were strong. The National Retail Federation (NRF, trade group representing U.S. retailers), indicated that spending between Thanksgiving Day and Cyber Monday was the highest ever. A NRF survey indicated that the most popular spending category was apparel, with 57% of consumers reporting that they bought apparel over the weekend. The NRF is maintaining its forecast for 4.3-4.8% year-over-year growth in overall holiday-related spending.
Employment: The U.S. economy is estimated to have added 155,000 jobs in November. Revisions to figures for previous months were mixed. The number for October was lowered from +250,000 to +237,000. The number for September was increased from +118,000 to +119,000. The average increase in payrolls over the past twelve months is +204,000. Over the same time period last year, the twelve-month average was +183,000. The unemployment rate held steady at 3.7% in November. This is the third consecutive month with the same reading. The value of 3.7% is the lowest since the late 1960s.
Average hourly earnings for private employees increased 3.1% year-over-year in November. This follows 3.1% annual growth in October. Both of these values represent the only times since the financial crisis that wages have increased by more than three percent.
Consumer Confidence & Spending: The Conference Board’s Index of Consumer Confidence decreased 2.2 points last month. This dropped index readings from 137.9 to 135.7. Despite the reduction, values remain close to the all-time high of 144.7 set in January 2000.
Overall consumer spending increased at the strongest rate in six months in October (+0.4% month-over-month). Year-over-year, overall spending was 2.9% higher.
Consumer spending on apparel was up 0.5% month-over-month in October. This is the strongest monthly rate of increase since July. Year-over-year, consumer apparel spending was 4.9% higher in October. Since June, the rate of annual growth in consumer spending on clothing has accelerated, picking up from rates generally between two and three percent to those near or above five percent.
Consumer Prices & Import Data: Retail prices for apparel increased 0.2% month-over-month in October. Year-over-year, consumer prices were 0.3% lower.
Average import prices for cotton-dominant apparel increased 0.9% month-over-month in seasonally-adjusted terms (USD per square-meter-equivalent or SME). Year-over-year, cotton-dominant apparel import prices were 2.7% higher. Over the past twelve months, the volume of cotton-dominant apparel imports is 0.8% higher (SME volume).