In recent comments, the US’ Federal Reserve reiterated that it is willing to continue to increase interest rates until the threat of inflation has definitively eased. The comments made by Fed’s chairman in August, was followed by losses in several markets, including cotton. Several spending categories have experienced price decreases, as per Cotton Inc.
US gasoline prices have been declining since June. The most recent national average was $3.86/gallon, down from the peak of $5.11/gallon in the middle of June. The rate of year-over-year increases in US clothing prices has slowed from rates near 7 per cent to those below 5 per cent. Despite year-over-year gains, price levels for apparel have not moved too far beyond values before COVID (July 2022 CPI was +1.8 per cent versus the average from 2019), Cotton Inc said in its Executive Cotton Update for September 2022.
The labour market can influence inflation. While the latest job numbers described a deceleration in hiring in August, but jobs are still being added at a rate above the long-term average and the job market is tight. Tightness in the labour supply can support wage growth. As wages rise, businesses may need to pass along the cost increases to consumers. Higher wages can also help reduce the difficulty in securing staff by pulling more workers into the economy. The Federal Reserve has a dual mandate of supporting employment and managing inflation. Both objectives require careful balancing as interest rates rise and the economy slows.
The US economy was estimated to have added 315,000 jobs in August. Revisions to previous months were negative (figure for June reduced by 105,000 to 293,000 and July reduced by 2,000 to 526,000). The twelve-month average for job gains is 487,000, the report said.
The unemployment rate increased marginally, from 3.5 per cent to 3.7 per cent. This was primarily due to a substantial month-over-month increase in the labour force (+786,000 workers in August versus July). Relative one year ago, 2.6 million more people were in the labour force and 5.5 million more people were working in August. The larger increase in workers relative to the labour force over the past year implied a tightening in the labour market (the unemployment rate fell from 5.2 per cent to 3.7 per cent year-over-year).
Tightness in the labor market has been supportive of wage growth. Wages were up 5.2 per cent year-over-year in August, nearly even with the average over the past 12 months (5.3 per cent) and well above the peak rate of increase between the financial crisis and the onset of the pandemic (3.6 per cent in February 2019).
The Conference Board’s Index of Consumer Confidence increased for the first time in three months in August (7.9 points month-over-month, from 95.3 to 103.2). The current value matches the level in May. Since COVID, the index has been between 87.1 (February 2021) and 128.9 (June 2021). The long-term average is 93.8 (since 1970).
In July, overall consumer spending increased 0.2 per cent month-over-month in inflation-adjusted terms. Year-over-year, real spending was 2.2 per cent higher. Spending on garments rose 0.7 per cent month-over-month and was up 2.1 per cent year-over-year. Relative to the same month in 2019 (pre-COVID), spending on apparel was 25.1 per cent higher. Over the long term, the average annual growth in consumer spending on clothing is close to 2 per cent. In the 26 months since the COVID-driven shutdown (June 2020-July 2022), spending growth on apparel outpaced overall spending in each of the first 21 months. For the past five months, spending growth on apparel was lower than growth in overall spending, the Cotton Inc report said.
The CPI for apparel decreased 0.1 per cent in July. Year-over-year, retail clothing prices were 4.7 per cent higher. This is down from the peak year-over-year rate of 6.9 per cent in March 2022. The latest value for the CPI for apparel is 1.8 per cent higher than the average in 2019.
Import volumes have been strong, with recent seasonally adjusted annual rates 35 per cent higher than they were before COVID (weight volume of apparel of all fibres imported in the US, past three months versus the average for 2019). Import costs continue to rise. In July, the average import cost per square meter (SME) of cotton-dominant apparel was up 23 per cent year-over-year, reaching the highest value since 1990. The influx of imports followed the rise in inflationary pressure at the consumer level. Any pullback in consumer spending resulting from inflation could contribute to inventory accumulation and discounting, the report added.
Source: https://www.fibre2fashion.com/