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Cotton Incorporated: US Macro Indicators & the Cotton Supply Chain

Cotton Incorporated: US Macro Indicators & the Cotton Supply Chain

06 May 2014

GLOBAL - In an advance estimate, the Bureau of Economic Analysis determined the U.S. economy grew only 0.1% in the first quarter (seasonally-adjusted, annual rate). This was the slowest pace since the fourth quarter of 2012, when the economy also grew 0.1%.

Cotton IncIn the time since the fourth quarter of 2012, the U.S. economy averaged quarterly growth of 2.6%, which is equal to the expansion the fourth quarter of 2013.

The slower pace of GDP growth in the first quarter of 2014 was primarily a result of lower exports and decreased business investment. Real consumer spending increased 3.0%. Most of the increase in consumer spending was a result of increased expenditures on health care and utilities.

Spending on goods, which were likely impacted by the severe winter, increased only 0.4% quarter-over-quarter. In inflation and seasonally-adjusted terms, spending on clothing and footwear was one percent lower (-$3.6 billion) in the first quarter than it was in the fourth quarter.

However, the advance GDP figures were released before data for March were completely available. In March, the weather improved, and spending increased. Early evidence of a recovery in consumer demand surfaced in retail sales data.

Cotton Inc. DataU.S. retail sales data are published by the Census Bureau and describe spending by channel (e.g., clothing stores). These figures are released several weeks before the consumer spending data that are reported by product category (e.g., apparel).

In seasonally-adjusted data for March, both overall retail sales and sales at clothing stores rose 1.2% month-over-month.

Employment: The U.S. economy was estimated to have added 288,000 jobs in April, which is the largest addition since January 2012. Revisions to existing figures for February (+25,000, from +197,000 to +222,000) and March (+11,000, from +192,000 to +203,000) indicated that 36,000 more positions were created than previously estimated.

The unemployment rate decreased from 6.7% to 6.3%, reaching its lowest level since September 2008. While job growth was a contributing factor, the decline in the unemployment rate was also influenced by a decline in the labor force participation rate.

Consumer Confidence and Spending: The Conference Board's Index of Consumer Confidence decreased 1.6 points in April, falling from 83.9 to 82.3. The value for March, which was revised higher, is the highest since January 2008. Even with this month's decrease, the index continues to hold to some of its strongest levels since the financial crisis.

Despite the gains marked over the past several years, confidence remains depressed relative to other periods of economic expansion. It has been nearly five years since the official end of the latest recession (June 2009). Although the decline in the Index of Consumer Confidence was not as severe during the recession in 2001, in the five years that followed that recession, the index rose to levels over 100.

As retail sales data suggested, consumer spending rebounded in March. In inflation-adjusted terms, overall spending increased 0.7% month-over-month, representing the largest monthly gain in nearly five years (since August 2009).

Spending on apparel is more volatile, and although expenditures on apparel were 0.8% higher month-over-month in March, the increase was smaller than the one registered in February (+0.9%). Year-over-year, overall spending was 2.9% higher in March; apparel spending was 0.7% lower.

Consumer Prices & Import Data: The CPI for all goods and services increased 0.2% month-over-month in the latest data for March. The CPI for apparel also increased 0.2%. Year-over-year, overall prices were up 1.5%; prices for garments were 0.7% higher.

The CPI for apparel has not changed significantly since reaching a plateau in the spring of 2012, and continues to hold to values approximately 7% higher than before the spike in fiber prices.

Both the average cost per square-meter-equivalent (SME) and the volume of cotton-dominant imported apparel have also been stable since the spring of 2012. Average import prices have held to levels about 15% higher than before the fiber price spike and about 7% below the peak set in September 2011.

The volume of cotton-dominant apparel imports in terms of SMEs have held steady near 1.0 billion SME/month. Prior to the 2008/09 recession and the 2010/11 fiber price spike, volumes near 1.2 billion SME/month were common. Expectations of stronger economic growth, as well as potential increases in cotton's market share could pull the volume of cotton higher in 2014.

Further Reading

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