U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview
After a string of positive surprises, the number of jobs added in April (+175,000) was below expectations and represented the smallest gain since October (+165,000). Wage growth also slowed, but it remained stronger than readings for inflation.
The Federal Reserve’s Open Market Committee met in early May and decided to hold interest rates at the level it has maintained since July 2023. The decision to hold rates steady was not a surprise after a string of officials highlighted a cautious approach after inflation readings ticked a little higher early in the year. Specifically, the inflation rate that the Federal Reserve tracks most closely climbed from +2.5% to +2.7% between January and March. The Fed’s official target for inflation is two percent.
The uptick in inflation is a factor that shifted the outlook for interest rates away from one suggesting a series of decreases this year and towards another where rates are expected to be “higher-for-longer.” Higher interest rates are associated with slower economic growth, and in the first estimate released by the government, the U.S. economy expanded only +1.6% in the first quarter. This is the slowest pace of U.S. GDP growth since the -0.6% contraction in the second quarter of 2022.
The International Monetary Fund (IMF) recently released a set of updated projections for GDP growth around the world. In 2024, the IMF predicts the U.S. economy will expand +2.7%. If realized, this would be a slight acceleration from 2023, when growth was +2.5%. The IMF projects collective growth for Advanced Economies to be marginally higher than in 2023 (+1.7% in 2024 versus +1.6% in 2023). Growth rates in Emerging and Developing Economies are forecast to be marginally weaker (+4.2% in 2024 versus +4.3% in 2023).
The IMF estimates that global GDP increased by +3.2% in 2023 and predicts it will expand by the same rate in 2024 and 2025. An encouraging trend is that those figures have been rising over time. The current projection for 2024 is +0.1 points higher than the number released in January and is +0.3 points higher than the IMF release in October. Nonetheless, the current forecasts for growth in 2024 and beyond suggest sluggish rates of expansion relative to what has been experienced in recent decades. Factors impeding growth include higher borrowing costs, the withdrawal of stimulus, and geopolitical tensions.
Employment
The U.S. economy is estimated to have added +175,000 new jobs in April. Revisions to previous months were mixed, with the figure for February dropping -34,000 to +236,000 and the figure for March rising +12,000 to +315,000. The current twelve-month average is +233,000.
The unemployment rate increased marginally from 3.8% to 3.9% month-over-month in April. With the latest figure, the unemployment rate has been below four percent for 28 consecutive months.
Wages increased +3.9% year-over-year in April. This is the lowest value since the post-stimulus peak of +5.9% (March 2022). Nonetheless, wage growth remains higher than the latest inflation readings. The overall CPI published by the Bureau of Labor Statistics indicated prices rose +3.5% year-over-year in March. The price deflator published by the Bureau of Economic Analysis, which the Federal Reserve uses to guide monetary policy, rose +2.7% in March.
Consumer Confidence & Spending
The Conference Board’s Index of Consumer Confidence decreased for the third consecutive month in April (-6.1 points). The current value of 97.0 is the lowest since July 2022 (95.3). Since July 2022, values have ranged between 95 and 115. The long-term average for the index is near 93.0.
In inflation-adjusted terms, overall consumer spending increased +0.5% month-over-month in March. This followed a -0.3% month-over-month decrease in January and a +0.5% increase in February. Year-over-year, overall spending was +3.1% higher in March.
After substantialmonth-over-month increases between November and January (+1.1%in November, +1.3%in December, and +0.6% in January), there were pullbacks in consumer spending on apparel in February (-0.7%) and March (-0.4%). March was a weak month for consumer spending on clothing last year, and the weakness in March 2023 contributed to the +3.6% year-over-year increase in March of this year.
Consumer Prices & Import Data
The CPI for garments increased +0.7% in March. This was the largest monthly increase since the end of 2021. Year-over-year, average prices for apparel at retail were +0.2% higher. Relative to the average in 2019 (pre-COVID), prices were +4.8% higher.
Average import costs, represented by the price per square meter equivalent (SME) of cotton-dominant apparel, decreased -0.6% month-over-month in March. Year-over-year import prices were down -7.8%. Relative to the average in 2019, sourcing costs for cotton-dominant apparel in March were +6.2% higher.