August 2013 Executive Cotton Update
Macroeconomic Overview: The U.S. economy was estimated to have expanded at a seasonally-adjusted annual rate of 1.7% in the second quarter. This latest set of GDP figures included a series of revisions to the methodology used to develop estimates. In the new approach, the Commerce Department is making an effort to better incorporate the contribution of intangible assets and investments, such as intellectual property and research and development. The updated methods were applied to historic data (back to 1929) and lifted the overall level of economic activity. Despite the resulting change to the size of the GDP figure, the new approach generally did not produce significant changes to rates of growth.
The GDP growth between April and July represented the second consecutive in which the pace of expansion accelerated (growth was only 0.1%. in the fourth quarter of 2012 and 1.1% in the first quarter of 2013). Despite the improvement, growth remains depressed relative to values typical during periods of economic expansion. Since the official end of the recession in June 2009, the U.S. economy has averaged annual growth rates of 2.0%. This is well-below average rates of growth following other recent recessions (2.7% in the expansion after the recession in the early 2000s, 3.8% in the expansion after the recession in the early 1990s, 4.0% in the expansion after the recession in the early 1980s). Manufacturing activity is often a leading indicator for overall economic activity, and the purchasing managers’ index (PMI) for U.S. manufacturing posted the strongest monthly increase in nearly two years in July (55.4, any reading over 50 indicates an expansion).
However, expectations that the world’s economies would rebound to higher levels of economic growth have been consistently pushed back since the recession. In the July update to World Economic Outlook forecasts, the International Monetary Fund (IMF) reduced their April projections for 2013 U.S. GDP growth by 0.2 percentage points (from 1.4% to 1.2%). Forecasts for 2013 growth in the Euro Zone (-0.2 points, from -0.4% to -0.6%), China (-0.3 points, from 8.1% to 7.8%), and the world also declined (-0.2 points, from 3.3% to 3.1%). The only large economy with an upward revision was Japan (+0.5 points, from 1.5% to 2.0%). In 2014, the global economy is expected to expand 3.8%, a 0.7 point improvement relative to 2013. With the world’s advanced economies barely growing and growth in emerging markets slowing, a challenge to achieving higher rates of growth could be general weakness in overall demand.
Employment: The U.S. economy is estimated to have added 162,000 jobs in July. Previous figures for May (-19,000, from +195,000 to +176,000) and June (-7,000, from +195,000 to +188,000) were both revised lower. The unemployment rate declined slightly, dropping from 7.6% to 7.4%. One factor that helped pull the unemployment rate lower is the gradual decline in layoffs. Initial claims for unemployment insurance have fallen to levels below 350,000; values below 400,000 are commonly associated with job growth. Another factor that contributed to the decline in the unemployment rate is the reduction in the labor force participation rate.
Consumer Confidence & Spending: The Conference Board’s Index of Consumer Confidence declined slightly in July, dropping 1.8 points from 82.1 to 80.3. Despite the decrease, the index is holding to its highest levels since January 2008. The improving labor and housing markets could be supporting consumer attitudes. In the latest home price data, values were higher in each of the 20 cities tracked by the Case-Shiller Index and the national average returned to its spring 2004 level. With homes representing the largest single investment for most consumers, an indirect effect of higher home values is that can help consumers feel wealthier and increase spending. A direct effect can be increased consumer spending on home furnishings, such as towels and sheets, when consumers move to new homes. Higher gasoline prices can negatively affect consumer discretionary spending. In July, the national average increased about 0.05$/gallon. The most recent weekly averages were over $3.70/gallon.
Consumer Prices & Import Data: The U.S. CPI for garments increased 0.9.% month-over-month in June and continue to hold to values 6-7% higher than they were prior to the spike in cotton prices. Average import prices have not changed more than $0.07 (+/- 2.5%) per square meter equivalent (SME) since April 2012, holding to values 12-13% higher than prior to the spike in fiber prices. Cotton-dominant apparel import volumes were 1.7% higher year-over-year in the second quarter. With slow growth expected in the U.S. economy, slow growth in import demand could be expected in coming quarters.
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-2.pdf”]U.S. Macroeconomic Indicators & Cotton Prices[/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-3.pdf”]Daily Cotton Price & Currency Data [/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-4.pdf”]GPD Growth & U.S. Interest Rates [/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-5.pdf”]ISM Indices [/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-6.pdf”]Leading Indicators & Consumer Confidence [/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-7.pdf”]Employment [/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-8.pdf”]Housing [/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-9.pdf”]Industrial Production Inventory/Shipments [/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-10.pdf”]U.S. Yarn Exports [/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-11.pdf”]Consumer Spending[/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-12.pdf”]Industrial Production & Inventory/Shipments [/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-13.pdf”]Trade Weighted Index & Asian Currencies[/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-14.pdf”] Currencies vs. U.S. Dollar [/pdf]
[pdf pdflink=”/wp-content/uploads/2013/08/2013-08-Executive-Cotton-Update-15.pdf”]U.S. Balance Sheet & Fiber Prices [/pdf][/pdfcharts]