Executive Cotton Update: February 2018

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U.S. Macroeconomic Indicators & the Cotton Supply Chain

Macroeconomic Overview

In its “advance”, or first, estimate the Bureau of Economic Analysis suggested that the U.S. economy expanded at a 2.6% seasonally-adjusted annualized rate in the fourth quarter. In the third quarter, U.S. economic growth is estimated to have been 3.2%. On an annual basis, the BEA indicates U.S. GDP grew 2.3% in 2017. In 2016, growth was 1.5%.

Consumer spending was strong in the fourth quarter, rising 3.8% (compared to 2.9% in the fourth quarter last year). Simultaneously, the personal saving rate fell below three percent for the first time since 2007. This reveals that a portion of the growth in spending during the holiday period was a result of redirected savings. Reallocation of savings to spending cannot continue indefinitely. Correspondingly, further growth in spending may be limited unless wage growth accelerates. Wages did rise as the fastest rate since the recession in January. If sustained, the positive effects of wage growth on spending will have to be balanced against the tendency for rising wages to lead to higher inflation (as employers pay employees more, they need to raise prices to cover those costs). In response to rising inflation, the Federal Reserve is expected to raise interest rates.

Estimates for global economic growth continue to rise. The International Monetary Fund (IMF) issues updated forecasts in January, and their latest figure for world GDP in 2017 is 3.7%, or 0.1 points higher than the figure released in October. Forecasts for 2018 and 2019 were both lifted 0.2 points (to 3.9% in each year) and suggest the highest rate of global growth since 2011. Stronger than expected growth in Asia and Europe were principally responsible for pulling world GDP figures higher. In accompanying statements, the IMF indicated that global inflation remains weak and that monetary policy should remain accommodative.

The value of the U.S. dollar has been volatile. After falling throughout most of 2017, the dollar rebounded in the early fall, but has since declined rather sharply. The Federal Reserve is expected to raise interest rates three or four times this year. Increases in interest rates are typically associated with stronger demand, and therefore higher values, for currencies. However, another factor that can affect exchange rates is relative economic growth. Although the U.S. is expected to continue to grow in 2018, growth in Europe is expected to outpace that in the U.S. Those expectations of stronger growth in the Euro Zone, which represents the second most commonly traded currency after the dollar, are a likely reason why the euro has gotten stronger against the dollar. The RMB has also appreciated alongside the euro, and since October the dollar has fallen about 7% against both of these currencies.


The U.S. economy was estimated to have added 200,000 jobs in January. Revisions to previous months’ data were mixed, with the figure for November reduced from +252,000 to +216,000 and the figure for December increased from +148,000 to +160,000. Over the past twelve months, job growth has averaged 176,000. The unemployment rate was unchanged at 4.1%, which remains the lowest level since 2000. With low unemployment, there is more competition among firms for employees, and that competition can drive up wages.

After lagging other improvements in the labor market, wage growth has appeared (subject to revision) to finally have started to accelerate. Revisions pulled the figure for wages in December higher (from 2.5% to 2.7%), and in January, average hourly wages were 2.9% higher than one year ago. Although this rate is still below levels that were common in previous periods of economic expansion (wages growth was consistently over 3.0% before the 2008-09 recession), the estimate for wage growth in January is the highest since the financial crisis. Between 2010 and mid-2015, wage growth was between 1.5% and 2.5%. Between mid-2015 and 2017, wage growth was mostly between 2.5% and 2.7%. Higher wages can support further growth in consumer spending, and also has the potential to pull people back into the labor force. Since the early 2000s, the proportion of the U.S. population wanting to work has fallen 67% to 63%.

Wage growth was 2.5% last month, which is below the levels between 2.6% and 2.8% which were common throughout much of 2016. The overall inflation rate was 2.2% in November (latest month with available data).

Consumer Confidence & Spending

The Conference Board’s Index of Consumer Confidence increased 2.3 points in January, rising from 123.1 to 125.4. Values continue to rank among the strongest since the early 2000s..

Overall consumer spending increased 0.3% month-over-month and was up 0.4% year-over-year in December (latest available data). Consumer spending on apparel was up 0.4% month-over-month in December, compounding the strong 3.2% month-over-month growth registered in November. Year-over-year, consumer spending on apparel was up 5.4% in December, reinforcing private sector reports of a strong holiday sales period.

Consumer Prices & Import Data

The overall inflation rate increased 0.2% month-over-month and 2.1% year-over-year in December (latest available). Retail apparel prices decreased 0.5% month-over-month and were 1.4% lower year-over-year. Average sourcing costs for cotton-dominant apparel were unchanged in seasonally-adjusted terms between November and December. At $3.27 per square meter equivalent, average import prices were $0.07/SME or 2.3% higher than a year ago. For the year, cotton- dominant apparel imports were down slightly in 2017 (-2.6%), while overall apparel imports were flat (+0.8%).

Read the full Executive Cotton Update: February 2018.