Executive Cotton Update: February 2019

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U.S. Macroeconomic Indicators & the Cotton Supply Chain

Macroeconomic Overview

The International Monetary Fund (IMF) publishes comprehensive revisions to forecasts in April and October. In January and July, updates are made. Last month’s update left the estimate for global GDP growth in 2018 unchanged at 3.7%. Projections for 2019 and 2020 were lowered (from 3.7% in 2019 to 3.5%, and from 3.7% in 2020 to 3.6%).

The downward revisions to 2019 and 2020 projections followed decreases already made in October. Reasons cited for the latest reductions include effects from the U.S.-China trade dispute, a slowdown in Germany, debt-related concerns in Italy, and a deeper than previously believed contraction in the Turkish economy. The IMF emphasized that risks are weighted toward the downside. Key risks include further escalation of trade tensions, tightening financial conditions, the possibility of a “no-deal” exit of the United Kingdom from the European Union, and a deeper than currently believed slowdown in China.

The Chinese government released full-year estimates for GDP growth last month. These data indicated that Chinese economic growth in 2018 (6.6%) was the weakest annual figure since 1990. The Chinese government also lowered their estimate for economic growth in 2017 (from 6.9% to 6.8%). The trade dispute with the U.S. has not been helpful, but challenges to the Chinese economy extend beyond exports. A government crackdown on lending through the informal sectors is thought to have restricted access to credit from the “shadow banking” system and constrained borrowing/investment by private firms.

In the U.S., the labor market continues to signal strength, with strong job growth and accelerating wage increases. However, other indicators have been flashing warning signs. Examples include slower manufacturing growth and weaker home sales. Concern about the future has manifested itself through volatility in financial markets and has caught the attention of the Federal Reserve. After four interest rate increases in 2018, the Federal Reserve chairman indicated in late January that limited inflation risk and a slower growth outlook has led the central bank to adopt a patient approach when considering the possibility of future rate increases. In addition, the Federal Reserve also suggested it may slow the process of unwinding holdings accumulated as part of the quantitative easing program that followed the financial crisis.

Another factor affecting U.S. growth recently was the partial government shutdown that began on December 22nd and ended January 25th (longest in history). With the release of many economic indicators postponed due to the shutdown, the task of quantifying its costs is challenging. The nonpartisan Congressional Budget Office estimates the annual rate of GDP growth in the first quarter will be 0.4 points lower than it would have been without the shutdown.


The U.S. economy is estimated to have added 304,000 jobs in January. This represents the 100th consecutive monthly increase, marking the longest continual stretch of job growth on record. This also represents the strongest monthly gain since February of last year. Revisions to existing estimates were mixed. The figure for November was increased from +176,000 to +196,000 and the figure for December was lowered from +312,000 to +222,000. Following these revisions, the average monthly increase over the past 12 months is 234,000. Over the same time period one year ago, the average increase was 173,000.

Despite the acceleration in hiring, the unemployment rate increased for the second straight month, rising from 3.9% to 4.0%. The unemployment rate is the ratio of the number of people without jobs over the number of people wanting jobs (labor force). After trending gently lower for the past two decades, the size of the labor force relative to the overall population (known as the labor force participation rate) has trended gently lower (from levels near 67% to those near 62%). Since the summer, that trend in the labor force participation rate has reversed itself. Although the recent reversal is a blip relative to the long-term trend, it does represent a notable addition to the number of potential workers in the U.S. economy. Since August alone, it is estimated that 1.4 million more Americans are looking for work. When an economy has more workers, it allows for greater economic growth.

Consumer Confidence & Spending

The Conference Board’s Index of Consumer Confidence decreased for the third straight month in January. The current level of 120.2 is the lowest since July 2017. However, even with the declines, the current level is also well above the long-term average near 100.

Due to the government shutdown, the release of consumer spending data has been delayed and it is not clear when those figures might become available.

Consumer Prices & Import Data

Retail apparel prices, as measured by the consumer price index (CPI) for garments was virtually unchanged month-over-month (+0.03%) and year-over-year (+0.02%) in December (latest available data). Trade data have not been updated since the shutdown.

Read the full Executive Cotton Update: February 2019.