U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview
Many financial markets experienced volatility in recent weeks. The list of contributing causes is not short. It includes record COVID cases brought by the Omicron variant, high inflation, concerns about central bank actions to tame inflation, and geopolitical developments. It is hoped that the Omicron-driven surge in COVID cases has already peaked, but its effects have already been considerable. Daily case rates climbed to as many as 800,000 diagnoses per day. This is more than three times higher than the previous record set one year ago.
Although job growth is robust, the impacts of the surge have been felt on the economy. From data collected over the two weeks ending January 10th (before the peak in daily cases), the U.S. Census Bureau estimates that 8.8 million workers could not report to work within the four previous weeks because either the respondent or someone in their family had COVID. Another 3.2 million indicated they missed work either because of concern about spreading or catching the virus. For perspective, the U.S. working population is 162 million. This means that about one in thirteen U.S. workers missed at least one day due to COVID in late December or early January. Nationally, cases formed a peak on January 15th. More recently, cases have fallen but remain above the old record.
Despite COVID and other economic challenges, there is also a list of economic strengths. The U.S. labor market has mostly recovered from the unprecedented shock brought by the onset of COVID. The current unemployment rate (4.0% in January) is nearly even with the historically low figure before the virus (3.5% in February 2020). Wages have been growing faster than at any point in the decade preceding the pandemic. Higher-income can support further gains in consumer spending. Savings and wealth swelled over the past couple of years and can lend further support to spending.
These positives helped propel U.S. economic growth last quarter. In Q4 2021, U.S. GDP is estimated to have grown at a 6.9% annualized rate, representing the strongest growth since the immediate aftermath of COVID in Q3 2020. In other quarters of 2021, growth was 6.3% in Q1, 6.7% in Q2, and 2.3% in Q3. On an annual basis, the U.S. economy grew 5.7% in 2021. This is the strongest annual growth since 1984. In 2019, the U.S. economy grew 2.3%. In 2020, it contracted -3.4%.
In 2022, the U.S. economy faces headwinds from COVID, inflation, and rising interest rates. Nonetheless, growth is expected to remain strong. The International Monetary Fund (IMF) recently released forecasts for 2022 and beyond. Those projections suggest 4.0% annual growth in the U.S. economy in 2022 and 2.6% growth in 2023. IMF projections for global GDP suggest 4.4% growth in 2022 and 3.8% in 2023. For context, the IMF estimates the global economy grew 2.8% in 2019, contracted -3.1% in 2020, and surged 5.9% in 2021.
Employment
In January, the U.S. economy was estimated to have added +467,000 jobs. A series of annual revisions were added to regular monthly updates. The previous figure for November increased by +398,000 to +647,000, and the previous figure for December rose by +311,000 to +510,000. The 12-month average for job gains is +541,000. Since COVID, there has been a net loss of -2.9 million workers.
The unemployment rate edged slightly higher (+0.1 points) to 4.0% but remains low by historical standards. Wages increased 5.8% year-over-year in January, which was the highest rate since incomes were boosted by direct payments in the spring of 2020.
Consumer Confidence & Spending
The Conference Board’s Index of Consumer Confidence decreased slightly in January, dropping 1.4 points to 113.8. Readings in recent months have been above the recent low set in September (109.8) and below the recent high set in June (128.9). Before than pandemic, values were near 130. The long-term average (since 1970) is near 93.5.
Overall consumer spending was slightly lower month-over-month in December (-0.1%). Year-over-year, overall spending was up 7.1%. Apparel spending was down -6.5% month-over-month in December but was 16.1% higher year-over-year. Year-over-year spending on apparel has progressed at a higher rate than overall spending every month since May 2020.
Consumer Price & Import Data
The CPI for apparel increased +1.8% month-over-month in December (latest available). Year-over-year, prices were 5.8% higher. Retail apparel prices have increased in nine of the past twelve months. However, aggregate clothing prices fell sharply with the onset of the pandemic (as much as -8.7% year-over-year in May 2020), and they did not surpass their pre-COVID level until last month.
In seasonally-adjusted terms, average monthly prices per square meter equivalent (SME) of cotton-dominant apparel were slightly higher month-over-month (+0.02%). Year-over-year, the average imports prices were 14.2% higher in December. Compared to pre-pandemic levels (February 2020), import costs were 2.2% higher. For the full 2021 calendar year, the volume of SMEs of cotton-dominant apparel imports increased 32.1% relative to 2020. Compared to 2019, cotton-dominant apparel imports were 10.0% higher.