US - A range of macroeconomic data releases suggest US economic growth will continue at a moderate pace.
A leading indicator, the Institute for Supply Management (ISM) purchasing manager index (PMI) for manufacturing activity was slightly lower in data for September than it was for August. However, order placement continues to be robust, and the latest reading simply described a marginally slower rate of growth. The ISM's PMI for non-manufacturing activity also decreased slightly in data for September. As was the case for the manufacturing index, the reduction was a reflection slightly slower pace of expansion and did not signal a contraction.
Figures for the labor market improved this month. There was a solid month-over-month increase in payroll expansion in September and upward revisions to estimates for previous months eased concerns of a slowdown in hiring. With over two million jobs added since January, job growth this calendar year is 17.5% higher than a year ago and more than 30% above the average of 2011 and 2012. The increases in hiring have led to some increases in wages, which may support future advances in spending. Nonetheless, consumer confidence remains shaky and consistent gains in both hiring and wages may be necessary to generate sustained increases in spending.
The U.S. economy was estimated to have added 248,000 positions in September. This value was considerably higher than the initial estimate for August (was +142,000), and in combination with upward revisions for both August (from +142,000 to +180,000) and July (from +212,000 to +243,000), the outlook for job growth strengthened with this month's report. The unemployment rate fell below six percent (to 5.9%) for the first time since August 2008.
The unemployment rate decreased slightly in August, dropping from to 6.2% to 6.1%. At its current level, the unemployment rate is at its lowest since August 2008, prior to the recession. Initial claims for unemployment insurance, a proxy for layoffs, remain near 300,000 per week. These are the lowest values since the recession and are another indication of an improved labor market.
Consumer Confidence and Spending
The Conference Board's Index of Consumer Confidence decreased 7.4 points in September. This was the largest decline since October of last year, and it erased a large proportion of the gains made in the four preceding months. Advances made in the summer pulled the index to its highest readings since the recession. In September's data, the index dropped from 93.4 to 86.0 and is near the level reported in June. Despite this month's decrease, consumer attitudes are close to the most positive levels recorded since the recession.
Consumer spending accelerated in the latest available data for August. Overall spending increased 2.6% year-over-year, posting the strongest annual increase since December 2013. Consumer spending on apparel also accelerated in August and was 2.1% higher year-over-year (was down 0.8% in June and up 0.4% in July). For apparel, this was the strongest annual increase since October 2013.
Even with the acceleration in August, growth in garment sales was weak during the back-to-school season (defined as sales made between June and August). In 2014, apparel spending during the back-to-school season was 0.6% higher than the same time period last year. In 2013, year-over-year growth was 1.0%. In 2012, year-over-year growth was 1.2%.
Government statistics regarding the complete back-to-school season are not yet available, with the latest published figures being for the July. In July, overall consumer spending decreased 0.2% month-over-month (seasonally-adjusted data), but was up 2.0% year-over-year. Growth in consumer spending on apparel was weaker throughout the summer. Spending on garments decreased month-over-month in May (-1.0%)) and June (-0.9%), but increased 0.5% in July. Year-over-year, apparel spending was negative in May (-1.0%), June (-0.9%), and July (-0.1%).
Consumer Prices & Import Data
The CPI for apparel decreased only marginally in August, dropping 0.3% relative to the value for June. At its current level, the CPI for garments is 7.3% higher than it was prior to the spike in fiber prices and nearly equal to the highest level posted after the fiber spike in June 2014.
Average import prices for cotton-dominant apparel have fallen for the past two months of available data. In seasonally-adjusted terms, the average cost per square-meter equivalent, import costs have been range-bound since the spring of 2012. Decreases marked in the past two months of data (June and July) pulled values from the high end of that range (near $3.50/SME) to the lower end of the range (near $3.44/SME).
Recent decreases in import prices may be reflective of lower fiber prices. Pass-through analysis of supply chain prices during the spike in 2010/11 revealed that it only took a period of two months for noticeable decreases in apparel import prices to emerge after the peak in fiber prices was registered in March 2011.
World cotton prices have been decreasing since Chinese cotton policy reforms were announced in late March. Given the two to three month lag witnessed previously for fiber and import prices, it may be possible to attribute recent declines in import prices to the decline in fiber prices. If this relationship is assumed, it can be expected that average prices for cotton-dominant garments imported into the U.S. will continue to decrease in coming months as record volumes of available cotton supply around the world keep downward pressure on fiber prices.
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