Executive Cotton Update: July 2022

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U.S. Macroeconomic Indicators & the Cotton Supply Chain

Macroeconomic Overview

Financial markets continued to be volatile over the past month. Following drops in stocks and cryptocurrencies, commodity prices became the latest broadly defined sector to suffer steep losses. Cotton futures were among the commodities that experienced sharp declines. The nearby July contract lost 30%, while the December futures contract (reflective of post-harvest price expectations), fell 25%. Given that a wide range of other agricultural and industrial commodities suffered simultaneous losses, the decline in cotton prices can be considered as part of a general pullback in commodity investment rather than a reflection of any specific concern about weakness in demand or oversupply of cotton.

Nonetheless, there are possible sources of concern. It is estimated that around 75% of downstream demand for cotton flows into apparel and that another 20% is devoted to home textiles. Relative to food and energy, spending on both of these categories is more discretionary than spending on food, energy, or housing. U.S. housing costs are up more than 10% relative to their pre-COVID levels. Prices for food and energy have risen 10% or more just in the past twelve months. While there have been year-over-year increases in clothing prices (near five percent most recently), the CPI for apparel remains near pre-COVID levels (up only about one percent versus the average for 2019 in May). As a result, the greater threat to U.S. apparel spending may come from consumers being pinched by price increases from other spending categories rather than from a rise in apparel costs.

Policy responses to inflation may be another source of concern for apparel and fiber demand. Comments made during the latest meeting held by the Federal Reserve led observers to believe that interest rates will continue to rise by at least one-half of a percentage point in late July. However, these comments were accompanied by statements expressing concern about the implications for economic growth. In eight of the last nine periods of monetary tightening, the U.S. slipped into recession. However, not all recessions are as severe as the financial crisis or the one provoked by COVID. Among the factors that could support U.S. consumer demand in future months include a strong labor market, solid wage growth, and the surge in wealth that came with stimulus after COVID.


The U.S. economy was estimated to have added +372,000 jobs in June. Revisions to previous months were negative. The figure for April decreased -68,000 positions to +436,000. The figure for May decreased -6,000 to +384,000. The twelve-month average for job growth is +523,000. The unemployment rate was 3.6% for the fourth consecutive month. This value is near historic lows and is virtually even with the level before COVID. Wages were +5.1% higher year-over-year in June. This is nearly double the average rate of wage growth that followed the financial crisis.

Consumer Confidence & Spending

The Conference Board’s Index of Consumer Confidence decreased -4.5 points month-over-month in June. This followed a -5.4 point drop in May. The current level for the index (98.7) is the lowest since February 2021. After COVID, values for the index climbed as high as 128.9 (June 2021). The lowest value for the index after COVID was 87.1 (January 2021). Before COVID, when the unemployment rate was at a level nearly equal to the current value, the Index of Consumer Confidence was near 130.

Overall consumer spending decreased -0.4% month-over-month in inflation-adjusted terms in May. Year-over-year, real spending was -2.1% lower. Spending on garments decreased -0.6% month-over-month and was down -0.3% year-over-year. Some of the recent weakness in apparel spending growth could be due to difficult year-over-year comparisons. Relative to May 2019, spending on apparel was 24% higher in May 2022. The same was true one year ago, spending in May 2021 was also up 24% relative to the level from May 2019. The average annual rate of growth in clothing spending is near 2%, so there has been sustained outsized growth, even if recent year-over-year rates have flattened.

Another factor that may be contributing to slower growth in apparel spending is a rebalancing of spending between goods and services. Relative to January 2020 (pre-COVID), spending on goods was 13% higher in May 2022 while spending on services was only 0.6% higher. At its post-COVID peak (March 2021), spending on goods was 20% higher than in January 2020. That same month (March 2021), spending on services was down 8% versus January 2020.

Consumer Prices & Import Data

After registering the first month-over-month decrease in six months in April, the CPI for apparel increased +0.6% in May. Year-over-year, retail clothing prices were up +5.1% in May. Despite the series of recent increases, retail prices for clothing are only 1.3% higher than the average from 2019. Sourcing costs continue to rise. The latest seasonally-adjusted cost per square meter equivalent (SME) of cotton-dominant apparel was the highest since 2011 ($3.69/SME in May). This represents a +24% increase above the low set in March 2021 ($2.97/SME) and a 10% increase relative to pre-COVID levels.

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