Cotton Incorporated
Executive Cotton Update
U.S. Macroeconomic Indicators & the Cotton Supply Chain
March 2025
Macroeconomic Overview: Policy uncertainty clouds the outlook for the macroeconomy and for U.S. apparel sourcing. Questions involving trade, geopolitics, and fiscal decisions linger over markets.
Tariff increases were proposed in two separate pushes. The first occurred around the end of January. In that round, the U.S. proposed increases in duties for goods sourced from Mexico, Canada, and China. The proposed increases for Mexico and Canada were delayed, while the 10% increase for China went into effect February 4th.
A second push for tariff increases occurred more recently, with implementations scheduled for March 4th. In this round, 25% tariff increases were set for Mexico and Canada. However, several product categories were excluded soon after these increases were put into effect. Goods from China were subjected to another 10% increase (bring total rate increases for China in 2025 to 20%). Retaliations for this group of tariff increase were announced by China and Canada. Mexico has not announced a reaction.
It is unknown when the cycle of tariff negotiations may wind down, and it is also unknown what the precise implications are for the economy. Tariffs may have an inflationary effect, which could influence consumer spending and lead the Federal Reserve to make a move on interest rates.
In recent comments, the Federal Reserve underlined its balancing act, indicating that it will monitor both the labor market and inflation to support both aspects of its dual mandate (to promote full employment while holding inflation near two percent).
Employment: The U.S. economy was estimated to have added +151,000 jobs in February. This figure is slightly higher than the volume from January and near the average over the past year. Employment at the federal government declined last month, but most of the recent government layoffs occurred too late in the reporting window for current jobs data. Revisions to previous months were mixed, with the figure for December increasing (+16,000 to +323,000) and the figure for January decreasing (-18,000 to +125,000). The twelve-month average for job gains is +162,000.
The unemployment rate rose slightly from 4.0% to 4.1%. This is within the tight range between 3.9% and 4.2% that has held the rate since February 2024. Values below five percent have been rare historically, but the unemployment rate has been below this level since late 2021.
Average hourly earnings increased +4.1% year-over-year in February. Wage growth has slowed relative to the post-stimulus high of +7.0% (February 2022). Over the past twelve-months, wage growth has been stable between 4.0% and 4.2%. These values are higher than anything experienced in the period between the financial crisis and the pandemic. Recent values have also been higher than the overall rate of inflation (CPI +3.0% year-over-year in January). Wage growth has been stronger than inflation since early 2023, and the rate of wage growth has been more than one percentage point higher than the inflation rate for the past seven months.
Consumer Confidence & Spending: The Conference Board’s Consumer Confidence Index declined -7.0 points in February (to 98.3). This represented the third consecutive monthly decline and the largest monthly decrease since August 2021. The index remains a few points above the four-year low recorded in July of 2022. Despite the string of decreases, the current level remains within the range between 95 and 115 that has contained values since 2021.
Overall consumer spending decreased to -0.5% month-over-month 2025 in January. This was the first monthly decrease since January 2024. Year-over-year, overall spending was +3.0% higher. In contrast, spending on garments was +1.1% higher month-over-month, but up only +1.5% year-over-year.
Consumer Prices & Import Data: The CPI for garments decreased -1.6% month-over-month and was only +0.4% higher year-over-year in January. Retail apparel prices worked their way successively higher after COVID. Levels over the past two years have been above those set between 2012 and 2014 (after the 2010/11 fiber price spike) and were the highest values since the early 2000s. Between 2012 and 2014, CPI values approached values as high as 123.0. More recently, the CPI for clothing appears to have established a plateau and has been flat to lower.
Import volumes have surged in recent months. In each month with data since October, the weight volume of apparel (all fibers) imported into the U.S. has been up by +15% or more year-over-year. In the latest month with data (January), shipments were up +26% year-over-year. There are several factors that could explain the increase. These include inventory stabilization after a period of drawdown, a push to bring in imports ahead of tariff increases, and potential restrictions on de minimis shipments.
