U.S. Macroeconomic Indicators & the Cotton Supply Chain
Macroeconomic Overview: The U.S. presidential election is over, and one source of uncertainty for U.S. and global markets has been resolved. While a new president has been chosen, the elections did not generate a clear result for the U.S. Senate. Runoff elections in Georgia will determine whether Republicans hold onto their slight majority. Regardless of the outcome, the majority for either party will be slim and could make the passage of major legislation a challenge for the next couple years. In the next couple months, a legislative action (or inaction) to follow is whether another stimulus measure may be passed.
A combined effect of the shutdown this spring and the reopening that followed was a wide swing in data for the U.S. GDP. After a record contraction in the second quarter, there was a record expansion in the third. In the seasonally-adjusted annual rates that the Bureau of Economic Analysis uses for their headline number, the change was from -31.4% to +33.1%. Seasonally-adjusted annual rates for quarterly change can facilitate more direct comparison with annual rates but may be misleading in times of extreme volatility. An alternate way of examining GDP is in simple year-over-year terms. In the second quarter, the U.S. economy was -9.0% smaller year-over-year. In the third quarter, U.S. economic activity was -2.9% lower than one year ago.
The International Monetary Fund (IMF) released updates to their projections for global GDP last month. The IMF figure for 2020 improved from -4.9% (June estimate) to -4.4%. The increase was a result of stronger than expected growth in China (+0.9 percentage points, or ppt, relative to June, to +1.9%), the U.S. (+3.7 ppt versus June, to -4.3%), and the Euro Zone (+1.9 ppt to +5.2%). For 2021, the IMF is predicting a 5.2% global expansion. This is lower than the 5.4% growth forecast in June. The U.S. is projected to grow 3.1% in 2021. The Euro Zone is expected to grow +5.2%. The Chinese economy is forecast to expand +8.2%.
Meanwhile, global COVID cases continue to climb. Both the U.S. and Europe have been setting new records for daily diagnoses. Several European countries have already announced restrictions on consumer activity. The threat of further surges in caseloads around the world is a downside risk to all economic forecasts. With the uncertainty surrounding COVID and economic conditions, the National Retail Federation (NRF) did not issue their annual projection for holiday sales growth.
Nonetheless, there are reasons to be optimistic about holiday sales. Consumer confidence is above the long-term average, consumer spending has been consistently positive, and savings rates have been elevated for the past several months, suggesting that consumers have resources they could devote to purchases.
Employment: The U.S. economy was estimated to have added 638,000 jobs in October. This is the lowest monthly increase since May (was +2.7 million in May, +4.8 million in June, +1.8 million in August, +672,000 in September). The sum of these gains is 12.1 million. In March and April, losses totaled 22.2 million. The net result is that the U.S. economy is down a little more than ten million jobs since COVID-19.
The unemployment rate fell from 7.9% to 6.9% last month. Initial claims for unemployment insurance, a proxy for layoffs, remain stubbornly high at levels above 750,000. This is about 100,000 losses above the worst weeks during the financial crisis. With layoffs elevated, a factor helping the unemployment rate has been reductions in the labor force. Compared to one year ago, the number of people wanting to work declined by 3.5 million people.
Consumer Confidence & Spending: The Index of Consumer Confidence was nearly unchanged last month (-0.4 points, from 101.3 to 100.9). At its current level, the index is 20% lower than one year ago (126.1) but is above the long-term average (93.3 since 1970).
Overall consumer spending increased 1.2% month-over-month in September but was 2.0% lower year-over-year. Spending on apparel surged 6.4% month-over-month and turned positive year-over-year. The 3.1% year-over-year increase in clothing spending in September is higher than rates commonly posted over much of the past decade.
Consumer Prices & Import Data: Retail apparel prices, as measured by the CPI for garments, decreased 0.3% month-over-month in September. Year-over-year, average apparel prices were 6.4% lower. In terms of USD per square meter-equivalent (SME), average prices for cotton-dominant apparel imports increased 0.8% month-over-month (seasonally-adjusted). Year-over-year, average import prices were 8.8% lower.
In terms of import weight volume, year-over-year levels remain below those from one year ago, but the size of the gap has gotten smaller. The raw fiber equivalence of cotton contained in U.S. apparel imports was down 3.8% in September (latest available). Between April and August, the decreases were -46%, -66%, -45%, -24%, and -11%. Ahead of the pandemic, but after the imposition of tariffs on Chinese-made goods (Sept 2019-Feb 2020), imported cotton weight was down 8% year-over-year.