U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview
The U.S. labor market continues to add jobs at a solid pace, with the latest addition coming in above projections. Recent inflation readings have also been coming in above expectations. The Federal Reserve’s mandate requires the pursuit of both low unemployment and the maintenance of inflation near two percent.
Since the labor market has consistently been adding jobs, the unemployment rate has been able to maintain historically low values below four percent. Meanwhile, inflation has been above two percent. The latest reading (February) for the core price deflator targeted by the Federal Reserve indicated prices were rising +2.8% year-over-year.
With unemployment low and inflation above the target, there may be room for the Federal Reserve to pressure the labor side of its mandate in order to pursue the inflation portion of its objectives. In terms of policy, this suggests little rush to lower rates. Comments from Federal Reserve officials suggest thinking has been migrating away from rate decreases, with several voting members of the Fed’s Open Market Committee recently stating that it may be too soon for cuts. There have also been comments expressing concern about the potential for inflation to start increasing again, which introduces the possibility of interest rate increases.
This contrasts with expectations just a few months ago, when many were predicting four or more rate cuts in 2024, with decreases potentially beginning as soon as the first quarter of this year. Those forecasts have been tamped down, with fewer and smaller rate cuts now expected. There may also be an increased possibility of no cuts in 2024. Nonetheless, in the Summary of Economic Projections report released in late March (where forecasts from Federal Reserve officials are summarized), the median projection suggested three rate cuts of 0.25 points this year.
Higher interest rates maintained for a longer period of time imply headwinds for the U.S. economy could be stronger for longer. However, recent data on spending and GDP have been surprisingly positive. The labor market remains tight, and wages continue to grow at levels above inflation, which can signal increased consumer spending power.
Employment
The U.S. economy is estimated to have added +303,000 new jobs in March. Revisions to previous months were mixed, with the figure for February dropping -5,000 to +270,000 and the figure for January rising +27,000 to +256,000. The current twelve-month average is +244,000.
The unemployment rate decreased marginally from 3.9% to 3.8% month-over-month. The unemployment rate is the ratio of the number of employed people over the number in the labor force (people willing and able to work). In March, the unemployment rate decreased despite a sizeable increase in the estimated number of people wanting to work (+469,000 workers month-over-month).
Wages increased +4.1% year-over-year in March. The rate of wage growth has been shifting lower since the post-stimulus peak of +5.9% was set in March 2022. However, wage increases had been holding near +4.3% in recent months. The current figure is the lowest in the post-COVID-stimulus era (since the second half of 2021), but it remains higher than recent readings for inflation. CPI data are not yet available for March, but the year-over-year increase for aggregate prices (overall CPI, different from the core deflator targeted by the Fed) was +3.2% in February.
Consumer Confidence & Spending
The Conference Board’s Index of Consumer Confidence was nearly unchanged month-over-month in March (-0.1 points). The current value of 104.7 is near the middle of the range between 95 and 115 that has contained values since the third quarter of 2021.
In inflation-adjusted terms, overall consumer spending increased +0.4% month-over-month in February. This followed a -0.2% decrease in January. Year-over-year, overall spending was +2.4% higher in February.
After strong month-over-month growth in apparel spending between November and January, when gains were +1.1% (Nov), +1.3% (Dec), and +0.6% (Jan), there was a pullback in February (-1.5% month-over-month decrease). Year-over-year, spending on clothing in February was +0.6% higher. The annual rate of change in apparel spending was positive in November (+1.5%), December (+2.3%), and January (+1.0%), but this followed a period with year-over-year decreases from March to October 2023.
Consumer Prices & Import Data
The CPI for garments increased +0.3% in February. Year-over-year, retail apparel prices were marginally lower -0.2%. Average import costs, represented by the price per square meter equivalent (SME) of cotton-dominant apparel, decreased -2.3% month-over-month in February. Year-over-year import prices were down -10.6%. Relative to the average in 2019, sourcing costs for cotton-dominant apparel in February were +8.5% higher.