April 2014 Executive Cotton Update
Macroeconomic Overview: In comments made at a press conference at the end of March, the newly appointed chairwoman of the Federal Reserve, Janet Yellen, indicated that the U.S. economy continues to underperform. Conditions have been improving gradually, but Ms. Yellen indicated that “The recovery still feels like a recession to many Americans, and it looks that way in some economic statistics.” One economic statistic that has remained stubbornly high is the unemployment rate. Even with the declines since the peak of 10% in October 2009, the unemployment has held to values over 6.5%.
The Federal Reserve has a dual mandate that requires it to maintain full employment and keep inflation under control. As a concept, full employment describes a labor market in which everyone who wants a job can find one without causing excessive inflation. The unemployment rate associated with full employment is a matter of debate, but the Federal Reserve Open Market Committee has indicated that it considers the long run normal rate of unemployment to be between 5.2% and 5.6%. At 6.7%, the current unemployment rate remains well above this target. With slack in the labor market, wage rates have not been increasing, and inflation has not been a concern.
In combination, these factors suggest the low interest rate policies the Federal Reserve has pursued to stimulate the economy will continue. Low interest rates can encourage consumer spending on big ticket items like cars and houses. In turn, higher demand for these goods can increase employment and manufacturing. Low interest rates can also encourage businesses to increase spending, which could lead to investments in new equipment and new employees. Nonetheless, the prolonged period of low interest rates over the past several years has failed to stimulate sufficient hiring to pull the unemployment rate back to pre-recessionary levels.
Consumer Confidence and Spending: The Conference Board’s Index of Consumer Confidence increased 4.0 points in March. At its current value of 82.3, the index is at its highest level since February 2008. Job growth continues to be a likely contributor to improvement. The weather, which became milder in March after one of the most intense winter seasons in recent years, could also be a factor lifting spirits.
Winter conditions were still present during the month of the latest Department of Commerce consumer spending figures. In February, overall spending was estimated to have risen 0.2% month-over-month; apparel spending was estimated to have risen 1.0%. Year-over-year, overall spending was 2.1% higher in February; apparel spending was up only 0.5%. Although year-over-year spending growth for apparel was stronger than overall spending immediately after the recession, spending on clothing has grown more slowly since 2011. Year-over-year spending growth for all good and services increased an average of 2.0% in 2013, for apparel it was 1.4%. In 2012, it was 2.2% overall and 0.9% for apparel.
Similar to retail prices, the average cost per square-meter-equivalent (SME) of cotton-dominant imported apparel has been stable since the spring of 2012. Unlike retail apparel prices, which have been stable at values near the high point set in the wake of the fiber price spike, the cost of imported apparel has declined relative to its peak. In the latest available import data for February, the seasonally-adjusted cost for cotton-dominant apparel was $3.47/SME, which is almost 7% below the post-fiber-spike high of $3.78 set in September 2011.
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-2.pdf”]U.S. Macroeconomic Indicators & Cotton Prices[/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-3.pdf”]Daily Cotton Price & Currency Data [/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-4.pdf”]GPD Growth & U.S. Interest Rates [/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-5.pdf”]ISM Indices [/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-6.pdf”]Leading Indicators & Consumer Confidence [/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-7.pdf”]Employment [/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-8.pdf”]Housing [/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-9.pdf”]Industrial Production Inventory/Shipments [/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-10.pdf”]U.S. Yarn Exports [/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-11.pdf”]Consumer Spending[/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-12.pdf”]Industrial Production & Inventory/Shipments [/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-13.pdf”]Trade Weighted Index & Asian Currencies[/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-14.pdf”] Currencies vs. U.S. Dollar [/pdf]
[pdf pdflink=”/wp-content/uploads/2014/04/2014-04-Executive-Cotton-Update-15.pdf”]U.S. Balance Sheet & Fiber Prices [/pdf][/pdfcharts]