U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview
The U.S. labor market is showing signs of slowing. Although the latest headline number for job growth came in above expectations, updates significantly lowered figures for previous months. In addition, the unemployment rate is trending higher, while wage growth is decelerating.
At the same time, the latest readings on inflation describe slower rates for price increases. The “core” price deflator, which is the index most closely tracked by the Federal Reserve (core excludes energy and food), fell to +2.6% year-over-year in May. The central bank’s official target for this measure is two percent. One year ago, the reading was +4.0%. At its peak in June 2022, it was +7.1%.
The Fed’s dual mandate is to promote the maximum sustainable level of employment while maintaining inflation near two percent. With unemployment creeping higher and inflation becoming slower, there is renewed anticipation surrounding the potential for interest rate decreases over the next few months. The next meeting for the Federal Reserve’s Open Market Committee, the group responsible for decisions about interest rates, occurs at the end of July. The next meeting after that is in September.
Projections from Federal Reserve officials released in the first half of June suggest one or two rate cuts are possible in 2024. Nonetheless, statements continue to emphasize that they are looking for sustained reductions in inflation. The surprising uptick in inflation in the first quarter served as a reminder that there can be movement along the downward trend that can complicate decisions about the timing for rate cuts.
Employment
The U.S. economy is estimated to have added +206,000 new jobs in June. Revisions to April (-57,000 to +108,000) and May (-54,000 to +218,000) lowered estimates for previous months by more than 100,000 positions. The current twelve-month average is +217,000.
The unemployment rate increased marginally from 4.0% to 4.1% month-over-month in June. This level remains low by historical standards, but the unemployment rate has been on a slight upward trend since the first half of 2023 (rate was 3.4% in April 2023).
Wages increased +3.9% year-over-year in June. The latest reading fits into the gradual downward trend in wage growth since the post-stimulus peak of +5.9% was set in March 2022.
Consumer Confidence & Spending
The Conference Board’s Index of Consumer Confidence was essentially flat in June (down less than one point, from 101.3 in May to 100.4). The current value remains below the mid-point of the range between 95 and 115 that has contained values since the second half of 2021. The long-term average for the index is near 93.0.
Readings for the Index of Consumer Confidence are based on a mix of consumer responses covering current economic conditions and expectations for the future. The portion of the index addressing current conditions reflects optimism, while the outlook for the future is pessimistic. This pattern has generally held since 2018 (outside the months most affected by COVID).
In inflation-adjusted terms, overall consumer spending increased +0.3% month-over-month in May. Year-over-year, overall spending was +2.4% higher. This is slightly stronger than the average annual growth rate over the past twelve months (+2.3%).
After three months of decline (-1.2% in February, -0.5% in March, -1.6% in April), consumer spending on apparel increased +1.2% month-over-month in May. Year-over-year, spending on clothing was +2.6% higher.
Consumer Prices & Import Data
The CPI for garments decreased -0.3% month-over-month in May. This followed a +1.5% month-over-month increase in April. Year-over-year, average retail prices for apparel were up +0.8%. Recent price levels are the highest since the early 2000s. Current index values are about two percent higher than they were from 2012-18 and about nine percent higher than they were from 2004-11.
Average import costs, represented by the price per square meter equivalent (SME) of cotton-dominant apparel, decreased -1.6% month-over-month in May (seasonally-adjusted). Year-over-year import prices were down -6.3% in May. Relative to post-COVID peak (November 2022), the latest value is -13.1% lower. Relative to the average in 2019 (before COVID), sourcing costs for cotton-dominant apparel in May were +7.3% higher.