Executive Cotton Update: January 2019

Posted on

U.S. Macroeconomic Indicators & the Cotton Supply Chain

Macroeconomic Overview

As was expected given strong consumer confidence and accelerating wage growth, the 2018 holiday sales period was a good one for retailers with results higher than forecasted. Mastercard SpendingPulse (data collected from credit card network as well as surveys to cover spending by cash and check) reports that sales were up 5.1% year-over-year between November 1st and December 24th. This exceeds the projection issued by the National Retail Federation (NRF, trade group representing U.S. retailers) that called for growth between 4.3-4.8%. Mastercard SpendingPulse found that apparel was among the most popular categories this year, with spending on clothing reported to have been 7.9% higher than last year. This represents the strongest rate of growth for holiday apparel spending since 2010.

While 2018 ended on a positive note, there are questions about the outlook for 2019. The current U.S. economic expansion ranks as the second longest on record (it officially began on June 2009, making it currently 115 months old, the longest expansion occurred in the 120 months between March 1991 and March 2001). There have been a few indicators that have shown some weakening. Examples include the housing market, where sales began to slow in the spring and prices have started to level off, and in U.S. manufacturing activity, where the latest purchasing managers’ index (PMI) registered its biggest monthly drop since 2008 (but nonetheless continues to signal expansion in activity). The labor market remains strong, with hiring and wages continuing to grow, but volatility in financial markets underlines mounting concern.

A source of concern may be that the Federal Reserve may increase interest rates too high too soon. In December, the Federal Reserve raised interest rates for the fourth time in 2018. With the latest increase (0.25 percentage points), the Federal Funds target rate rose to 2.5%. This is well above the unprecedented low levels of 0.25% that were maintained in the wake of the financial crisis (2009-2015). Even with the recent string of increases, apart from this period of unprecedented low rates, current rates rank as the lowest since the early 2000s. And, apart from the early 2000s, current rates are the lowest since the early 1960s. The latest comments from the Federal Reserve officials suggest they feel that interest rates are approaching a neutral level (i.e., not stimulative and not contractionary) and that the central bank may be less aggressive in increasing interest rates in 2019.

Another source of concern could stem from slowing growth outside the U.S., particularly in China, which has emerged as an increasingly important engine for global growth in recent decades. A pair of Chinese PMIs (one governmental and one from the private sector) signaled contraction in December. The latest Chinese retail sales data (November), were the weakest in 15 years.

A major source of uncertainty continues to be the trade environment. Some easing of tensions appeared with the meeting in early December, with the U.S. delaying the round of tariff increases initially scheduled to start with the onset of 2019. Another round of negotiations is scheduled for the week of January 7th.


The U.S. economy is estimated to have added 312,000 jobs in December. Revisions to figures for previous months raised existing numbers for October (from +237,000 to +274,000) and November (from +155,00 to +176,000). The 12-month average expansion in payrolls is 220,000. Over the same time period last year, the average increase was 182,000.

Due to an increase in the estimated size of the labor force, the unemployment rate rose from 3.8% to 3.9% month-over-month. Relative to last year, 2.6 million more Americans wanted to work in December.

Average hourly earnings for private employees increased 3.2% year-over-year in December. This is the third consecutive month that wages increased at a rate above three percent and each of these readings rank as the three highest since the financial crisis.

Consumer Confidence & Spending

The Conference Board’s Index of Consumer Confidence decreased 8.3 points last month (from 136.4 to 128.1). This was the biggest monthly decrease since 2015, but even with the decline, values for the index are strong compared to the long-term average near 100.

Overall consumer spending increased 0.3% month-over-month in November and was up 2.9% year-over-year. Consumer spending on apparel increased 1.7% month-over-month and was up 4.1% year-over-year. For each of the past seven months, year-over-year growth in apparel spending has outpaced overall spending.

Consumer Prices & Import Data

Retail prices for apparel decreased 1.2% month-over-month in November. Year-over-year, the CPI for garments was down 0.3%. Due to the government shutdown, trade data were not released as scheduled this month.