Executive Cotton Update: March 2018

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U.S. Macroeconomic Indicators & the Cotton Supply Chain

Macroeconomic Overview

The U.S. labor market continues to improve. Last month’s job growth was the strongest in a year and half. Wage growth slowed slightly relative to last month, but it remains above 2.5%, still ranking relatively high compared to levels common since the financial crisis. The improvement in the labor market has been a significant pulling consumer confidence higher over the past several years. In turn, more optimistic consumers have been spending more. With 70% of U.S. GDP derived from consumer spending, this has led to stronger economic growth.

The current economic expansion is now nearly ten years old. Using official recession dates from the National Bureau of Economic Research, the longest expansion in U.S. history was exactly 120 months (from March 1991 through November 2001). The current expansion began in June 2009 and has been occurring for 105 months. Among the principal economic indicators, there are not any strong signals for an impending contraction.

However, each recession is unique and the eventual trigger for of the next recession can be expected to not be fully known until the recession has begun. Nonetheless, beyond the simple length of the current expansion, there are several sources of concern that have been floated as potential causes of the next recession. One of these is that the Federal Reserve will move too fast to increase interest rates from their current low levels. Other concerns include a credit crisis in China and unpredictable geopolitical emergencies such a war.


The U.S. economy was estimated to have added 313,000 jobs in February. This represents the largest monthly increase since July 2016. Revisions to existing estimates were positive, with the figure for December increased from +160,000 to +175,000 and the figure for January increasing from +200,000 to +239,000.

The unemployment rate was unchanged at 4.0% month-over-month, holding to the lowest level since the early 2000s. The reason that the unemployment did not fall with the increase in jobs is that the labor force expanded. In February, 1.2% more people were estimated to have been looking for work than they were a year ago. This is the fastest rate of expansion in the labor force in more than a year. A larger labor force is associated with higher potential rates of economic growth into the future, and is a long-term positive for the economy. Since the financial crisis, the labor force participation rate has been trending lower. Several possible reasons have been cited to explain the downtrend, including the retirement of the “baby boomer” generation (large segment of the U.S. population born soon after World War II) as well as frustration regarding the labor market and its ability to provide sufficient income.

Recent increases in wages may be encouraging more people to look for work. Average hourly earnings increased at a 2.6% annual rate in February. This is slightly lower than the figure reported last month (2.8%). The acceleration in wages reported in January has been considered a trigger for the volatility in financial markets over the past month. This is because stronger wage growth can be a signal for rising inflation. Therefore, stronger wage growth can be seen as increasing the probability that the Federal Reserve will move to more aggressively increase interest rates. Overly aggressive increases in interest rates by the Federal Reserve are considered a possible contributing factor for the next recession. Nonetheless, overall inflation (Bureau of Economic Analysis, personal consumption expenditure based reading) has been holding to levels near 1.5% in recent months, which remains well below the Federal Reserve’s target rate of two percent

Consumer Confidence & Spending

The Conference Board’s Index of Consumer Confidence increased 6.5 points in February, lifting values over the 130 level (130.8) for the first time since December 2000. The all-time high for consumer confidence was 144.7 set in 2000.

Despite the strength in confidence, consumer spending slowed in January. Month-over-month, overall spending was down 0.1% and spending on apparel was down 1.4%. Year-over-year, however, growth rates for consumer spending were healthy, with overall spending 2.7% higher and apparel spending up 3.5%.

Consumer Prices & Import Data

Retail apparel prices increased 0.2% month-over-month, but were 0.2% lower year-over-year in the latest available data (January). Average import prices (seasonally adjusted) for cotton-dominant apparel were 0.9% higher in January, but were 0.6% higher year-over-year. For the 2017 calendar year, average import prices were nearly unchanged relative to the average in 2016 (+0.05%).

Read the full Executive Cotton Update: March 2018.