Executive Cotton Update October 2023

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U.S. Macroeconomic Indicators & the Cotton Supply Chain

Macroeconomic Overview

In comments released in late September, Federal Reserve officials suggested that interest rates will remain higher for a longer period of time. This represented a step away from the idea that interest rates would turn lower after the initial round of increases tamed inflation.

Evidence for changes in market expectations regarding interest rates can come from the Treasury market, where rates on 10-year securities have been trading near or below the rates for 2-year securities since the Federal Reserve began increasing rates in March 2022. Because they are over a longer time horizon, there is more opportunity for conditions to change, and that added risk generally pushes returns for longer-term securities above those with shorter commitments. When short-term rates are higher than long-term rates, it is commonly because the market expects the central bank to adjust rates lower.

A reason the market can expect the Federal Reserve to lower rates is because the market believes there will be an economic downturn and that the central bank will react by lowering interest rates to stimulate growth. This is why inverted yield curves (i.e., when short-term rates are higher than long-term rates) commonly precede recessions; they reflect the market’s anticipation of a downturn.

While returns on 10-year Treasuries remain lower than those for 2-year Treasuries, the difference has been getting smaller as the perceived possibility of a “soft landing” has become more widespread (the difference of 10-year rates less 2-year rates was -1.1 percentage points in June; it is now -0.3 points). For the macroeconomic outlook, this is a positive because it can be interpreted as a sign that a recession is less likely. However, it also suggests that a boost to growth that could have come from an eventual reduction in interest rates is less probable. Unfolding developments in the geopolitical situation may also influence macro conditions globally.


The U.S. economy is estimated to have added +336,000 jobs in September. Revisions to numbers for previous months were positive, with the figure for July rising +79,000 to +236,000 and the figure for August rising +40,000 to +227,000. The current twelve-month average is +266,000, which is equal to the three-month average, suggesting some stability in job creation.

The unemployment rate was unchanged at 3.8%. It has ranged between 3.4% and 3.8% since February 2022. Unemployment rates below four percent are rare, with there being only two other periods since World War II when the jobless rate was sustained at levels that low (in the early 1950s and late 1960s, more than one generation ago).

Average hourly earnings growth was +4.1% year-over-year in September. This is lower than the rates that were closer to +4.5% which were common in most of 2023. The latest deceleration follows a downward trend that has been in place since the post-COVID-stimulus peak of +5.9% (March 2022). However, the downward trend as flattened relative to where it was in 2022, and wages are still increasing at rates that are nearly twice as high as was common in the period between the financial crisis and the pandemic.

Consumer Confidence & Spending

The Conference Board’s Index of Consumer Confidence decreased by more than five points for the second consecutive month (down -5.3 points in August and down another -5.7 points in September). Recent decreases wiped out advances that were made in the summer (values rose from 102.5 to 114.0 between May and July). Despite the drop, the current value (103.0) is within the range between 100 and 115 which has contained values since August 2022. The long-term average for
the index is near 93.0 (since 1970).

In inflation-adjusted terms, overall consumer spending was flat month-over-month in August (+0.01%). Year-over-year, overall spending was +2.3% higher. Spending on apparel was +0.4% higher month-over-month but was -0.7% lower year-over-year. August was the sixth consecutive month when spending on clothing declined year-over-year.

Consumer Prices & Import Data

Retail prices for apparel were flat month-over-month in August (-0.04%). Year-over-year, the CPI for garments was +3.9% higher, and August represented the 29th straight month when prices rose. A proportion of recent price increases was reflation after the large (-8.7%) drop that occurred with the onset of the pandemic. However, retail clothing prices have since moved beyond pre-COVID levels. The value in August was +6.1% higher than the average in 2019. CPI values in July
and August were the highest experienced since 2001.

In seasonally-adjusted terms, the average import cost per square-meter equivalent (SME) of cotton-dominant apparel fell sharply month-over-month in August (-3.9%, from $3.89/SME to 3.74/SME). This was the lowest average cost since May 2022. Import volumes remain depressed, with cotton-dominant imports in August about -20% lower than shipments common before COVID.

View the full report and charts.