March 2014 Executive Cotton Update

Macroeconomic Overview: According to the Federal Reserve, the net worth of U.S. households reached a new record high in the fourth quarter after increasing 14% in 2013. Much of the gain in the value of household assets was due to the stock market, which increased about 32% last year (S&P 500) and continues to post new all-time highs in 2014. Wealthy Americans tend to hold more stock, so the benefits from rising stock prices were concentrated to the affluent.

However, the increase in net worth was also a result of rising home prices. Housing prices increased 13% last year, and with 65% of Americans owning or making payments to own homes, higher housing prices increase the wealth of a higher percentage of consumers. Prior to the onset of the financial crisis, the middle class was able to increase spending without improvement in wages since higher home prices allowed consumers to borrow increasing amounts against their homes. This was relevant to consumer spending, including product categories like apparel, since this borrowing facilitated increased consumer spending despite the absence of significant increases in wages.

Since the financial crisis, household debt as a percentage of disposable income has fallen, indicating that consumers have been paying down debt rather than increasing borrowing. While this may be encouraging since it suggests a more stable economic environment, the weak labor market has not allowed for real gains in income and the decline in borrowing also suggests difficulty for consumer spending to accelerate without significant improvement in the labor market.

Employment: The U.S. economy was estimated to have added 175,000 jobs in February. Revisions to existing figures for December (+9,000, from +75,000 to +84,000) and January (+19,000, from +113,000 to +129,000) indicated that 25,000 more positions were created than previously estimated. In their latest report, the Bureau of Labor Statistics (BLS) indicated that it is impossible to quantify the effects of the weather from the survey of businesses used to estimate month-to-month changes in payrolls.The unemployment rate is derived from a separate BLS survey of households and includes a question asking whether the weather prevented respondents from working during the current pay period. Individuals indicating the weather prevented them from working are counted as employed. In February, the unemployment rate rose slightly, increasing from 6.6% to 6.7%. The labor force participation rate was unchanged at 63.0%.

Consumer Confidence and Spending: The Conference Board’s Index of Consumer Confidence decreased marginally in February, falling 1.7 points to 78.1. Even with the decline, the index remains near its highest levels since early 2008. As one of the more volatile components of overall spending, gasoline prices can affect confidence. The national average for gasoline prices increased $0.21/gallon (+6.3%) since December.

In the latest Department of Commerce consumer spending figures for January, overall spending was estimated to have risen 0.3% month-over-month; apparel spending was estimated to have fallen 1.1%. Over the past twelve months, total spending increased eleven times, while apparel spending increased only five times. Year-over-year, overall spending was 2.2% higher in January; apparel spending was up only 0.5%.

Consumer Prices & Import Data: Higher retail apparel prices could be a factor limiting growth in spending on clothing. The CPI for apparel decreased marginally in January (to 121.5 from 121.7), but remains near the highest level posted (122.0 in August 2013) since the 2010/11 price spike.In the latest available data for January, average import prices per square-meter equivalent (SME) for cotton-dominant apparel were stable, remaining in the same range they have traded in since the early 2012, which is about 7% below their September 2011 peak and about 15% above the pre-fiber-spike level (seasonally-adjusted figures). Average import prices per SME for total apparel imports have also been stable, holding to values about 6% below their recent peak (also September 2011) and about 9% above their pre-fiber-spike level. Total apparel import volumes were 4.8% higher year-over-year for the twelve-month period ending in January. The increased volume of apparel imports may be an indication of increased retailer confidence relative to the sales outlook in coming months. If the U.S. economy can grow as forecast, and the labor market continues to improve, increased consumer apparel spending could validate the increase in imports.

[pdfcharts]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-2.pdf”]U.S. Macroeconomic Indicators & Cotton Prices[/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-3.pdf”]Daily Cotton Price & Currency Data [/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-4.pdf”]GPD Growth & U.S. Interest Rates [/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-5.pdf”]ISM Indices [/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-6.pdf”]Leading Indicators & Consumer Confidence [/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-7.pdf”]Employment [/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-8.pdf”]Housing [/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-9.pdf”]Industrial Production Inventory/Shipments [/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-10.pdf”]U.S. Yarn Exports [/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-11.pdf”]Consumer Spending[/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-12.pdf”]Industrial Production & Inventory/Shipments [/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-13.pdf”]Trade Weighted Index & Asian Currencies[/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-14.pdf”] Currencies vs. U.S. Dollar [/pdf]

[pdf pdflink=”/wp-content/uploads/2014/03/2014-03-Executive-Cotton-Update-15.pdf”]U.S. Balance Sheet & Fiber Prices [/pdf][/pdfcharts]

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