Cotton Incorporated
Executive Cotton Update
U.S. Macroeconomic Indicators & the Cotton Supply Chain
December 2024
Macroeconomic Overview: The days around Thanksgiving are traditionally rank among the busiest of the year for U.S. retailers. This year, Thanksgiving (celebrated on the fourth Thursday of November) was later than usual, which means there are fewer days for shopping between Thanksgiving and Christmas (five fewer days between the holidays this year than there were last year). With less time between the holidays, retailers have been trying to pull spending forward, with many stores putting Christmas-related goods on display ahead of Thanksgiving.
In its forecast for the holiday season, the National Retail Federation (NRF) suggested that consumers will increase spending 2.5% to 3.5% in 2024. This is slower than the strong rates of growth in recent years (+12.4% in 2021, +4.7% in 2022, +3.9% in 2023). However, it aligns with the NRF’s expectation that annual spending will be +2.5% to +3.5% higher throughout the entire 2024 calendar year. A primary factor supporting growth in consumer spending has been the health of the labor market. Unemployment remains at historically low levels while wage growth has been outpacing inflation since the second quarter of 2023.
Even though wages have been growing faster than inflation, consumers still face the challenge of higher price levels. Inflation refers to the year-over-year change in prices, and lower inflation implies a slower rate of increase. Although the rate of price increases has slowed, it should be remembered that slower increases are not the same thing as price decreases. The implication is that consumers are still facing prices that continue to rise on top of the accumulated increases that have occurred since the pandemic. Higher wages may be helping consumer budgets, but they are having to be balanced against persistently higher prices.
Much is not known about the details of policy changes that might come when the new administration takes office in January. The potential for tariff increases may create motivation for retailers and brands to pull orders ahead to try to beat the higher costs that could be imposed by higher tariffs. Over the longer term, higher sourcing costs resulting from any increases in duty rates may generate additional caution around order placement.
Employment: Last month, payroll figures came in well-below expectations. That release was affected by strikes and Hurricane Helene, and the initial estimate for job gains in October suggested only +12,000 positions were added. This month’s report described a rebound in November, with +227,000 jobs created. Revisions to previous months lifted estimates for both September (increased 32,000 to +255,000) and October (increased 24,000 to +36,000).
The unemployment rate increased marginally, from 4.1% to 4.2%. Current levels of unemployment are higher than the recent lows set in the second half of 2022 and in early 2023, when the rate hovered around 3.5%. However, recent values near four percent remain low by historical standards.
Wages increased +3.9% year-over-year in October. The rate of wage gains has been near four percent since the first quarter of this year. While the rate of change in income has slowed relative to the post-stimulus high of +7.0%, it remains higher than any value recorded between the financial crisis and the outbreak of COVID-19. Since the second quarter of 2023, wage growth has been stronger than inflation. The difference between wages and the overall CPI averaged more than one percentage point in 2024.
Consumer Confidence & Spending: The Conference Board’s Index of Consumer Confidence increased 2.1 points to 111.7 in November. This is the highest value since July 2023, but remains within the range between 95 and 115 that has generally contained the index since the middle of 2021.
Overall consumer spending increased +0.1% month-over-month in October. Year-over-year, overall consumer spending was +3.0%. This was the strongest rate of annual growth since December 2023 and suggest that holiday spending has gotten off to a solid start.
Consumer spending on apparel was +1.2% higher month-over-month. Year-over-year, apparel spending was +2.4% higher, which is the strongest rate of growth since the exceptional +4.2% year-over-year growth was recorded in June.
Consumer Prices & Import Data: The CPI for garments decreased -2.0% month-over-month in November. This was the largest decrease in retail clothing prices since the pandemic, and it marks a reversal to the upward trend in retail prices that had been in place since the drop in prices that followed the initial spread of COVID. Despite the decrease in November, retail apparel prices remain higher than they have been since the early 2000s.
After surging higher in the stimulated period after COVID, average import prices for cotton-dominant apparel have been trending lower. Following the peak in November 2022, import prices decreased sharply. More recently (since late 2023), average costs have continued to decrease, but at a significantly slower rate. Apparel import volumes have been rising. In October, the weight volume of clothing imports was the highest amount since September 2022 and was about ten percent higher than the average rate in 2019.
