Executive Cotton Update: May 2022

Posted on

U.S. Macroeconomic Indicators & the Cotton Supply Chain

Macroeconomic Overview

The Federal Reserve implemented a half percentage point increase in interest rates on May 5. Fed officials also signaled that further half-point increases are possible at each of the five remaining meetings this calendar year. The current range for the effective Federal Funds rate that the Fed controls is between 0.75% to 1.0%. The latest year-over-year rate for overall inflation is 8.5%. The Federal Reserve’s target for inflation is two percent.

Higher interest rates are one tool the Federal Reserve can use to pull inflation lower. Other tools involve open market operations, where the central bank trades Treasury bonds and other securities. After COVID, the Fed purchased large amounts of securities using money it created. The tapering of purchases and the reversal of those positions can reduce the money supply and compound the effect of rising interest rates.

The pullback from stimulative monetary policies will be a headwind the U.S. economy will have to contend with throughout the remainder of 2022 and beyond. The invasion of Ukraine caused another layer of complications for global supply chains. Disruptions to supply and sharp increases in a range of commodity prices are other impediments to policies to contain inflation and may slow economic growth.

The International Monetary Fund (IMF) recently updated their projections for GDP in 2022 and beyond. In January (before the war in Europe), the IMF forecasted global economic growth would be +4.4% in 2022. In figures released in late April, the IMF lowered that projection to +3.6%. For 2023, the projection for global growth was lowered from +3.8% to +3.6%. For comparison, global economic growth was estimated at +6.1% in 2021. In the five years before the spread of COVID (2015-19), global growth averaged +3.4%.

Forecasts for economic growth were also lowered for the U.S. The IMF now projects U.S. GDP will be +3.7% in 2022. This is down 0.3 points relative to the figure of +4.0% that was predicted in January. For 2023, the IMF suggests U.S. growth will only reach +2.3%. This is down sharply lower than the +5.7% expansion in 2021. In the five years before COVID (2015-19), the U.S. economy grew at an average rate of +2.4%.

The U.S. Bureau of Economic Analysis (BEA) estimated that the U.S. economy contracted at a -1.4% seasonally-adjusted annualized rate (SAAR) in the first quarter. This followed a +6.9% growth rate in the fourth quarter of 2021 and +5.7% growth for the entire 2021 calendar year. The largest contributor to the slowdown in GDP was a reduction in inventory. Inventories are known to be one of the most challenging elements of GDP to calculate and are a likely subject for future revision. While lower inventories subtract from GDP, they can also signal future growth since they suggest orders need to increase.

BEA data for consumer spending describe acceleration in the first three months of the year, with growth rising from an annualized rate of 2.5% in the fourth quarter to 2.7%. Spending growth was stronger for services (+4.3% SAAR in Q1 2022 versus +3.3% SAAR in Q4 2021) than for goods (-0.1% SAAR in Q1 2022 versus +1.1% SAAR in Q4 2021).


The U.S. economy was estimated to have added +428,000 jobs in April. Revisions to previous months were negative. The figure for February decreased by -36,000 positions to +714,000. The figure for March decreased by -3,000 to +428,000. The average for job growth over the past twelve months is +551,000. The unemployment rate was unchanged at 3.6%. This is virtually even with the historically low level before the onset of COVID. Wages were +5.5% higher year-over-year in April, which is significantly higher than the peak after the financial crisis (the highest value between 2009 and early 2020 was +3.6%).

Consumer Confidence & Spending

The Conference Board’s Index of Consumer Confidence was virtually unchanged month-over-month in April (-0.3 points to 107.3). The index has been holding to levels near 110 since September 2021. This is below the values near 130 that were common before COVID and above the post-COVID lows below 90 that were set in late 2020.

Overall consumer spending increased by +0.6% month-over-month in March was up by +2.3% year-over-year. Spending on garments decreased by -0.1% month-over-month and was down by -1.9% year-over-year. This was the first year-over-year contraction in spending since 2020. Part of the reason for the decrease is that comparisons are more difficult because spending in 2021 was strong. In 2021, apparel spending averaged +27% growth versus the same months in 2020 and +22% growth versus the same months in 2019.

Consumer Prices & Import Data

The CPI for apparel increased by +0.7% in March and was up +6.9% year-over-year. Despite recent increases, the current level for the CPI is near values from 2019. The average cost per square meter of cotton-dominant apparel was +15.0% higher year-over-year during the first three months of 2022.

View the full report and charts.