Executive Cotton Update: May 2018

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U.S. Macroeconomic Indicators & the Cotton Supply Chain

Macroeconomic Overview

The International Monetary Fund (IMF) publishes comprehensive sets of estimates and forecasts for economic growth around the world each April and October. In their latest report, the IMF indicated that the acceleration in global economic activity that began in mid-2016 has broadened and strengthened. Current projections suggest that the world economy will expand 3.9% in both 2018 and 2019 (inflation-adjusted rates). Global growth has not been this strong since the rebound that followed the financial crisis.

In 2017, U.S. GDP growth was 2.3%. The IMF predicts the U.S. will grow 2.9% this year and 2.7% in 2019. After growing 2.3% last year, the Euro Zone is expected to grow 2.4% this year and 2.0% in 2019 After growing 1.7% last year, Japan is expected to grow 1.2% this year and 0.9% next year. The estimates/forecasts for China are 6.9% in 2017, 6.6% in 2018, and 6.4% in 2019. The estimates/forecasts for India are 6.7% in 2017, 7.4% in 2018, and 7.8% in 2019.

The Bureau of Economic Analysis (BEA) recently released its first (advance) estimate for U.S. GDP in the first quarter. This preliminary figure indicates that the U.S. economy expanded at a 2.3% annualized rate (adjusted for inflation) in the first three months of the year. In the fourth quarter, growth was 2.9%. The deceleration was primarily a result of weaker spending growth, which slowed from a 4.0% rate in the fourth quarter to 1.1%. Among spending categories, the largest quarter-over-quarter decreases were for autos and clothing.

With the labor market strong and consumer confidence high, a possible reason for the deceleration in spending in the first quarter is that the acceleration in spending in the fourth quarter was too strong to build upon. Supported by spending on autos and clothing in the fourth quarter, consumer purchases surged from 2.2% to 4.0% (Q3 to Q4). The growth registered in the fourth quarter was the strongest in four years. A return to more normal rates of growth could explain some of the weakness in the figure for the first quarter of 2018. Spending growth (1.1%) in the first quarter ranks as the lowest in nearly five years. A contributing factor was that consumers saved more, with the savings rate rising from 2.6% to 3.1% quarter-over-quarter

Interest rates, as represented by bond yields, have been increasing, with yield on the 10-year Treasury note surpassing the three percent level for the first time since late 2013. There are several implications for rising interest rates. One is that savers can earn more on the money they put away, which is a positive. However, another implication is that it costs more to borrow, which can inhibit debt-supported spending. Interest rates also influence foreign exchange. The relative value of the dollar rose alongside 10-year Treasury yields, increasing about 5% since mid-April (ICE dollar futures market).


The U.S. economy was estimated to have added 164,000 jobs in April. In combination, revisions to existing estimates indicate more jobs were added over the previous two months than previously believed (+30,000 overall). The figure for February was lowered from +326,000 to +324,000. The figure for March was increased from +103,000 to +135,000. For the first four months of 2018, job growth averaged 200,000. Over the same time period in 2017, job growth averaged 177,000.

After holding at 4.1% for the previous six months, the unemployment rate fell below four percent (to 3.9% in April) for the first time since the year 2000. The year-over-year increase in wages was 2.6% last month, which is near the average in recent years. Early in the year, wage growth was stronger (near 2.8%) and there were hopes that wage growth was accelerating.

Consumer Confidence & Spending

The Conference Board’s Index of Consumer Confidence moved slightly higher in April, increasing 1.7 points from 127.0 to 128.7. Current values remain the highest apart from readings in 2000, when they were near 140.

As reflected in GDP-related figures, growth in consumer spending was weak in the first quarter. Month-over-month changes in overall spending in both January (-0.2%) and February (-0.2%) were negative. In March, overall spending increased 0.4%. Year-over-year, overall spending was 2.9% higher in January, 2.7% higher in February, and 2.4% higher in March.

For apparel, month-over-month spending was 2.2% lower in January, 1.7% lower in February, and 1.4% higher in March. Year-over-year, spending on clothing was 2.6% higher in January, 3.5% higher in February, and 2.8% higher in March.

Consumer Prices & Import Data

Retail apparel prices decreased month-over-month in March (-1.1%). Year-over-year, retail apparel prices were 0.1% higher. Sourcing costs, as represented by cotton-dominant import value per square meter equivalent, increased 3.9% month-over month in seasonally-adjusted terms. Year-over-year, cotton-dominant import costs were 5.2% higher.

Read the full Executive Cotton Update: May 2018.