U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview
Financial markets were rocked by volatility in recent trading. A selloff in technology stocks was a factor. Concern about the strength of the U.S. economy following the release of the latest employment data may have also been a contributor.
The U.S. economy has proven surprisingly resilient and has been an engine for global economic growth since COVID. A reason the U.S. economy has performed well is that consumer spending has been strong. Stimulus was an initial source of support for spending after the pandemic. More recently, the labor market has buoyed consumers.
Unemployment rates held at historically low levels below four percent for a period of 27 months, extending from February 2022 to April of this year. Low unemployment encouraged wage growth. Since 2022, after the distortive effects of stimulus calmed, year-over-year increases in income have been consistently higher than any point in the decade between the financial crisis and the onset of COVID. Simultaneously, inflation diminished consumers’ buying power, and even though inflation has slowed, price levels remain elevated. Nonetheless, wages have been growing faster than inflation since March 2023 and consumers have continued to spend.
Because the labor market was an important factor sustaining consumer spending and overall economic growth in recent years, signs of weakening in the latest employment data prompted worries about recession. In the latest data, the unemployment rate climbed from 4.1% to 4.3%. While the current rate remains low by historical standards, and while the rise in unemployment was partly due to more workers entering the labor force (a positive for the economy over the longer-term), last month’s increase reinforced the gentle upward trend in the unemployment rate that has been in place since the first quarter of 2023 (when the unemployment rate was near 3.5%). In addition, wage growth has been slowing. The latest annual rate of income growth was the lowest since the middle of 2021 (but it still ranks higher than any value from 2010 to 2019, and it was still higher than the overall inflation rate).
While there is increasing evidence that the labor market is slowing, questions remain about what it might mean for consumer spending and the overall economic situation in the U.S. Is the economy normalizing after a period of exceptional tightness in the labor market? Or, is the economy on track to dip into recession? After increasing rates to slow the economy because of inflation, the combination of a weakening labor market and slowing inflation appear to have put the Federal Reserve in a position to begin lowering rates. While any decreases can be expected to be gradual, any lightening of the interest rate brakes may help prevent an economic contraction.
Employment
The U.S. economy is estimated to have added +114,000 new jobs in July. Revisions to previous months were negative. The figure for May was lowered -2,000 positions to +216,000. The figure for June was lowered -27,000 to +179,000. The current twelve-month average is +209,000.
The unemployment rate increased from 4.1% to 4.3%. There was a +420,000 person increase in the estimated number of people wanting to work last month. This increase in the size of the labor force contributed to the rise in the unemployment rate.
Wage growth slowed last month. In July, the year-over-year rate of change in average hourly private wages was +3.6%. The rate of wage growth has been trending lower since March 2022, when it peaked at level of +5.9%. The overall inflation rate (CPI, all goods and services) was +3.0% higher year-over-year in June (month with the latest available data).
Consumer Confidence & Spending
The Conference Board’s Index of Consumer Confidence increased slightly in July (from 97.8 in June to 100.3). The current value remains in the lower half of the range between 95 and 115 that has contained values for the past two years.
Overall consumer spending increased +0.2% month-over-month and +2.6% year-over-year. Consumer spending on clothing
increased +1.1% month-over-month and +4.7% year-over-year. This was the strongest rate of annual growth for apparel sales since early 2022, when year-over-year comparisons were still being affected by stimulus payments.
Consumer Prices & Import Data
The CPI for garments increased +0.3% month-over-month in June. Year-over-year, average retail prices were +0.8% higher.
Average import costs for cotton-dominant apparel, represented by the value per square meter equivalent, decreased -1.0% month-over-month (seasonally-adjusted). Year-over-year, average import costs for cotton-dominant garments were down -7.2%.