U.S. Macroeconomic Indicators & the Cotton Supply Chain

December 2022

The U.S. labor market continues to add jobs and support wage growth.  This may give the Federal Reserve more room to continue to aggressively increase interest rates to tame inflation.  For this reason, financial markets turned lower after the positive job report.

Effects of rising interest rates on economic growth are lagged, so concerns remain about the outlook for growth into 2023.  Nonetheless, reports regarding spending during the critical Thanksgiving weekend were generally stronger than expected.

The National Retail Federation (NRF) reported that there were 196.7 million holiday shoppers in stores and online between the Thursday of Thanksgiving (November 24th) and the following Monday.  Dollar volume data for in-store sales on Black Friday (day after Thanksgiving) are not available, but online spending was reported to be +2.3% higher year-over-year.  On Cyber Monday, the Monday following Thanksgiving, which has become important for online spending, Adobe reported that sales were +5.8% higher.

Spending figures in dollar terms are affected by price changes.  Inflation may have pushed prices higher, but retailers facing inventory accumulation and potentially weaker consumer demand have been offering discounts.  Despite the swirl of price-related effects, consumers were more active than was feared.

For the entire holiday season, the NRF forecast consumer spending would be +6-8% higher year-over-year.  For comparison, holiday spending growth was +13.5% in 2021 and was +9.3% higher in 2020.  Before COVID, the U.S. was in a period of slower economic growth, and holiday spending was +1.9% in 2018 and +3.6% in 2019.

This year, the strength of the labor market and accumulated savings are supporting spending growth.  In addition, concerns about a future slowdown may be pulling spending forward in time. Depending on how much the economy may slow in 2023 and how many purchases are pulled forward, there could be a pullback in the new calendar year.

Employment: The U.S. economy was estimated to have added +263,000 jobs in November, near the levels posted over the past four months.  Revisions to figures from the last two months were mixed (September -46,000 to +269,000, October +23,000 to +284,000).  The current 12-month average is +408,000.  Wages increased +5.1% year-over-year, which is near most values registered after the initial shock of COVID.

The unemployment rate was unchanged at 3.7%, which is low by historical standards.  Initial claims for unemployment insurance, a proxy for layoffs, have been trending higher.  However, recent weekly values have held below 250,000.  Readings below 300,000 claims are associated with job growth.

Consumer Confidence & Spending: The Conference Board’s Index of Consumer Confidence decreased in November (-2.0 points, from 102.2 to 100.2).  The index held to levels near 110 in late 2021 in the first quarter of 2022 but dropped to levels closer to 100 more recently.  The drop in confidence followed the outbreak of war in Europe and the rise in gasoline prices.

Overall consumer spending increased +0.5% month-over-month in October.  Year-over-year, overall spending increased +1.8%.  Consumer spending on apparel increased +0.1% month-over-month and was +0.8% higher year-over-year.  Since March 2021, consumer spending on clothing has been relatively flat.  However, it has been holding at levels about +25% higher than the same months in 2019.

Consumer Prices & Import Data: Retail prices for garments decreased -0.5% month-over-month in October.  Year-over-year, retail apparel prices were +4.6% higher.  Compared to the average before COVID (2019 calendar year), clothing prices were +1.5% higher.

Import prices, as represented by the cost per square meter equivalent (SME) of cotton-dominant apparel, were $4.27/SME in seasonally-adjusted terms for October.  This is the highest value on record, and it follows a near-record low posted in March 2021 ($2.97/SME).

In terms of square meter equivalence (seasonally-adjusted), import volumes were down -17% year-over-year in October and have been negative year-over-year for each of the past four months of data (since July).  This followed record volume in April.  Imports remained elevated through June.  Since then, shipments have been trending sharply lower.  The volume in October was below the lower end of the general range that bound imports for most of the past decade (excluding months severely affected by COVID).

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