executive cotton update · executive cotton update u.s. macroeconomic indicators & the cotton...

Executive Cotton Update U.S. Macroeconomic Indicators & the Cotton Supply Chain

March 2020 www.cottoninc.com Macroeconomic Overview: Spread of the coronavirus has dominated headlines and mindsets of financial traders. Fear of outbreaks outside China pulled U.S. stock indexes off record levels with the steepest declines since the financial crisis. Recent volatility was sufficient to cause trading on the NY Stock Exchange to be temporarily suspended. Virtually all markets have been affected, including cotton, which has fallen from levels near 70 cents/lb to those approaching 60 cents/lb.

Measures of factory activity signaled a record contraction in Chinese manufacturing in February. Progress towards a return to normal has been reported from China, but the shutdown that occurred in recent weeks is still being digested by supply chains. Even if garments are assembled outside of China, many other major apparel exporting nations, notably those in Southeast Asia, are dependent on Chinese manufacturing for inputs. For example, a significant proportion of Vietnamese cut and sew operations rely on Chinese fabric. This means that retailers and brands that have shifted clothing imports away from China can still face delays and cost increases stemming from the effects of the virus within China.

On top of these supply chain specific issues, there are macroeconomic consequences. China represents about one-third of global economic growth, and Chinese economic growth has become increasingly dependent on domestic consumer demand. With many Chinese people forced to stay home over the past month, they were not earning or spending as they would have otherwise. Some spending may be recovered as conditions return to normal, but some purchases can also be expected to have been lost. The same set of consequences can be expected outside of China as the virus spreads. Many flights and meetings have already been canceled, meaning lost revenue lost by airlines, hotels, and restaurants. If other countries move towards a more general shutdown, as in China, impacts will compound.

In early March, the Organization for Economic Development and Cooperation (OECD) ventured an estimate for global GDP growth in 2020 of 2.4%. This figure was based on the assumption that the epidemic will have peaked in China in the first quarter and that the virus will be mostly contained in other countries. In 2019, global growth was a sluggish 2.9%, and central banks around the world were active in lowering rates last year to stimulate growth. This included three quarter-point rate cuts by the Federal Reserve. Due to concerns about the coronavirus, the Fed cut the rate by half a percentage point at their meeting in early March. Rates on longer-term U.S. Treasuries dropped to record lows ahead of the announcement and have continued to slide since then.

The virus is just one of many sources of uncertainty that markets are contending with. Another is the series of U.S. elections this year, with primaries on-going and the general election this fall. Yet another is the trade dispute. On February 14th, the U.S. lowered the tariff increases applied to List 4a (covers apparel products where Chinese share is less than 75%) that went into effect in September from 15 to 7.5 percentage points. The reduction in duties will ease some cost pressure, but there is already evidence of significant damage to apparel import demand.

In the five months of available data since tariffs on Chinese-made apparel were raised (September-January), imports of clothing from China were down 29% for cotton-dominant items and down 22% for garments of all-fiber content. While there has been some growth in imports from other countries, it has not been sufficient to make up for the losses suffered from China. Cotton-dominant apparel imports from all sources were down 9% over the past five months. Apparel imports of all-fiber contents from all sources were down 10%. The effects have been even more significant for certain products. For example, imports of Chinese jeans are down more than 40% for both men’s and women’s categories since September (jeans imports from all sources were down 13%).

Employment: The U.S. economy is estimated to have added 273,000 jobs in February. Revisions to both December (from +147,000 to +184,000) and January (from +225,000 to +273,000) were positive. Following this month’s revisions, job growth over the past twelve months is 201,000. During the same period one year ago, job growth was 171,000. The unemployment rate dropped to 3.5%. Over the past six months, the unemployment rate has been either 3.5% or 3.6%, holding to the lowest levels since the late 1960s. Wages increased 3.1%, which is near the low end of the range of 3.0% to 3.5% that has held between August 2018 and the present.

Consumer Confidence & Spending: The Conference Board’s Index of Consumer Confidence was nearly unchanged in February, increasing 0.3 points to 130.7. It remains high by historical standards. Overall consumer spending rose 0.1% month-over-month in January and was 2.8% higher year-over-year. Consumer spending on apparel decreased 2.3% month-over-month but was up 2.4% year-over-year.

Consumer Prices & Import Data: The CPI for garments increased 0.5% month-over-month in January but was 1.9% lower year-over-year. The average import price for cotton-dominant apparel (USD per square-meter equivalent or SME) was slightly lower month-over-month in January (from $3.43 to $3.41/SME). Year-over-year, the average was 0.6% higher.

U.S. Macroeconomic & Cotton Supply Chain Charts

Macroeconomic Indicators Industry & Textiles Retail Currencies Cotton GDP Growth Leading Indicators Industrial Production Consumer Spending Weighted Index U.S. Balance Sheet Interest Rates Consumer Conf. Inventory/Shipments Inventory/Sales Asia Fiber Prices ISM Indices Employment U.S. Yarn Exports Consumer Prices The Americas

Housing Polyester PPI Europe

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Executive Cotton UpdateU.S. Macroeconomic Indicators & Cotton Prices

March 2020

Macroeconomic Data

Quarterly Data

5-year 1-year 6-month 3-month Q2 : 2019 Q3 : 2019 Q4 : 2019 Unit Source

Growth in US Real GDP 2.3% 2.5% 2.1% 2.1% 2.0% 2.1% 2.1% % Chg. Quarter/Quarter Department of Commerce

Macroeconomic Series with Latest Data for January

5-year 1-year 6-month 3-month November December January

ISM Index of Manufacuring Activity 54.0 55.7 48.7 48.9 48.1 47.8 50.9 Index Institute for Supply Management

ISM Index of Non-Manufacturing Activity 56.6 57.1 54.7 54.8 53.9 54.9 55.5 Index Institute for Supply Management

Consumer Confidence 116.1 127.1 128.7 128.5 126.8 128.2 130.4 Index The Conference Board

Index of Leading Economic Indicators 105.1 108.7 111.6 111.6 111.4 111.5 111.2 Index The Conference Board

Change in Non-Farm Payrolls 195.1 184.6 219.7 239.3 261.0 184.0 273.0 Thousands of jobs Bureau of Labor Statistics

Unemployment Rate 4.4% 3.9% 3.6% 3.5% 3.5% 3.5% 3.6% Rate Bureau of Labor Statistics

US Interest Rates

Federal Funds 1.1% 1.7% 1.8% 1.6% 1.6% 1.6% 1.6% Interest rate Federal Reserve

10-year Treasury Bill 2.3% 2.4% 1.7% 1.8% 1.8% 1.9% 1.8% Interest rate Federal Reserve

Macroeconomic Series with Latest Data for January

5-year 1-year 6-month 3-month November December January Unit Source

Housing Starts 12.1 12.5 13.7 14.5 1.4 1.4 1.6 Annual pace, millions of units Department of Commerce

Existing Home Sales 5.4 5.4 5.4 5.4 5.4 5.3 5.5 Annual pace, millions of units National Association of Realtors

Industrial & Textile Data

Industrial & Textile Series with Latest Data for January


US Industrial Production 105.7 107.5 109.5 109.5 109.0 110.0 109.5 Index, 2002=100 Federal Reserve

Polyester Fiber PPI 108.3 101.2 99.5 97.7 98.2 97.9 98.2 Index, December 2003=100 Bureau of Labor Statistics

Industrial & Textile Series with Latest Data for October

5-year 1-year 6-month 3-month August September October Unit Source

Bale Equivalence of US Cotton Yarn & Fabric Exports 3.3 3.0 3.0 2.9 3.0 2.9 2.9 million 480lb bales USDA ERS

Industrial & Textile Series with Latest Data for January


US Textile Mill Inventory/Shipments Ratio 1.31 1.32 1.37 1.36 1.35 1.37 1.37 Ratio Department of Commerce

Retail Data

Retail Series with Latest Data for January


US Real Consumer Spending

All Goods and Services 2.9% 2.7% 2.6% 2.6% 2.3% 3.3% 2.7% % Chg. Year/Year Department of Commerce

Clothing 2.7% 2.7% 2.7% 3.9% 1.5% 6.3% 2.4% % Chg. Year/Year Department of Commerce

Consumer Price Indices

Overall 1.6% 2.1% 1.9% 2.0% 2.0% 2.3% 2.5% % Chg Year/Year Bureau of Labor Statistics

Clothing -0.7% -0.6% -1.4% -2.5% -2.4% -1.9% -1.9% % Chg. Year/Year Bureau of Labor Statistics

Retail Series with Latest Data for December

5-year 1-year 6-month 3-month October November December Unit Source

Retail Inventory/Sales Ratio

Clothing and Clothing Accessory Stores 2.4 2.3 2.3 2.3 2.3 2.3 2.3 Ratio Department of Commerce

Department Stores 2.1 2.1 2.1 2.1 2.1 2.1 2.1 Ratio Department of Commerce

Recent Averages Values in Recent Months





Recent Averages Values in Recent Quarters



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Executive Cotton UpdateDaily Cotton Price and Currency Data

March 2020

Daily Cotton Price Data

5-year 1-year 6-month 3-month December January February Unit Source

NY Nearby 70.5 72.0 71.6 69.4 67.0 70.1 67.1 cents/pound ICE

A Index 79.4 81.6 81.5 79.4 75.9 79.1 76.7 cents/pound Cotlook

Daily Currency Data

5-year 1-year 6-month 3-month December January February Unit Source

Dollar Trade Weighted Exchange Index 112.8 113.6 116.6 116.1 116.4 115.3 116.6 Index, January 1997=100 Federal Reserve

Asian Currencies

Chinese Renminbi 6.66 6.76 7.03 6.99 7.04 6.93 6.99 Chinese Renminbi/US dollar Reuters

Indian Rupee 67.29 68.18 71.28 71.22 71.05 71.21 71.40 Indian Rupee/US dollar Reuters

Japanese Yen 111.94 110.35 108.60 109.31 108.61 109.55 109.78 Japanese Yen/US dollar Reuters

Pakistani Rupee 118.17 127.68 155.37 154.81 155.04 154.87 154.52 Pakistani Rupee/US dollar Reuters

North & South American Currencies

Brazilian Real 3.56 3.65 4.14 4.18 4.15 4.08 4.31 Brazilian Real/US dollar Reuters

Canadian Dollar 1.31 1.31 1.32 1.32 1.32 1.31 1.33 Canadian dollar/US dollar Reuters

Mexican Peso 18.55 19.08 19.17 18.94 19.23 18.83 18.76 Mexican Peso/US dollar Reuters

European Currencies

British Pound 0.75 0.77 0.78 0.77 0.76 0.77 0.77 British Pound/US dollar Reuters

Euro 0.89 0.88 0.91 0.91 0.90 0.90 0.91 Euro/US dollar Reuters

Swiss Franc 0.98 0.99 0.99 0.98 0.99 0.97 0.98 Swiss Franc/US dollar Reuters

Turkish Lira 4.10 4.85 5.85 5.90 5.81 5.86 6.03 Turkish Lira/US dollar Reuters

Recent Averages Averages over Recent Months

Recent Averages Averages over Recent Months

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March 4, 2009

Seasonally Adjusted Annual Rate; Source: Department of Commerce

*Based on chained 2005$.

Source: Federal Reserve

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-10

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10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1 16:Q1 17:Q1 18:Q1 19:Q1

Growth in U.S. Real Gross Domestic Product

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U.S. Interest Rates

Federal Funds 10 Year Treasury Bill

% Chg from Previous Quarter

Source: Institute for Supply Chain Management

Source: Institute for Supply Chain Management

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ISM Index of Manufacturing Activity

Manufacturing Activity Manufacturing Employment

Source: The Conference Board

Source: The Conference Board

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140


Index (

1985 =

100)

U.S. Consumer Confidence

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70

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2004 =

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U.S. Leading Economic Indicators

Source: Bureau of Labor Statistics


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Change in U.S. Civilian Employment


Seasonally Adjusted Annual Rate; Source: National Association of Realtors

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3.5

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ion

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its

U.S. Existing Home Sales

0.4

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ion

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its

U.S. Housing Starts

Source: Federal Reserve. Historical data revised to 1997 baseline.

Seasonally Adjusted; Source: Department of Commerce

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-30%

-20%

-10%

0%

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20%

30%

Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19

% C

hange f

rom

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Ago

U.S. Industrial Production - Overall & Textile

Total Textiles

1.0

1.2

1.4

1.6

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tio

U.S. Textile Mill Inventory to Shipments Ratio

Seasonally Adjusted Annual Rate

Source: USDA ERS


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2.4

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3.2

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Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18

Mill

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US Cotton Yarn Exports

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ce

mb

er

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89

=1

00

Polyester Fiber Producer's Price Index





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-10%

-8%

-6%

-4%

-2%

0%

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4%

6%

8%

10%

Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19

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hange f

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Ago

U.S. Real Consumer Spending - All Goods & Services

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U.S. Real Consumer Spending on Clothing

Seasonally Adjusted; Source: Department of Commerce

Source: Department of Commerce


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-2%

0%

2%

4%

6%

8%

Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19

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hange f

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Ago

U.S. Consumer Price Indices - Overall & Apparel

Overall Apparel

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2.0

2.2

2.4

2.6

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3.0


Ra

tio

U.S. Retail Inventory to Sales Ratios

Department Stores Apparel/Accessory Stores

Source: Federal Reserve

Source: Reuters

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Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20

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5 Y

ears

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Pakistani Rupee Indian Rupee Japanese Yen Chinese Renminbi

90

100

110

120


Trade Weighted Exchange Index for U.S. Dollar

Curr

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Month

5 Y

ears

ago =

100

Source: Reuters

Source: Reuters

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rre

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o =

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Euro Turkish Lira Swiss Franc British Pound

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ars

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o

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Mexican Peso Brazilian Real Canadian Dollar

U.S. Balance Sheetmillion 480 lb. bales 2015/16 2016/17 2017/18 2018/19 2019/20 2019/20

January February

Beginning Stocks 3.7 3.8 2.8 4.2 4.9 4.9

Production 12.9 17.2 20.9 18.4 20.1 20.1

Imports 0.0 0.0 0.0 0.0 0.0 0.0

Supply 16.6 21.0 23.7 22.6 25.0 25.0

Mill-Use 3.5 3.3 3.2 3.0 3.0 3.0

Exports 9.2 14.9 16.3 14.8 16.5 16.5

Demand 12.6 18.2 19.5 17.7 19.5 19.5

Ending Stocks 3.8 2.8 4.2 4.9 5.4 5.4

Stocks/Use Ratio 30.2% 15.1% 21.5% 27.3% 27.7% 27.7%

Sources: ICE Futures U.S. & Cotton Outlook

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A Index NY Nearby

executive cotton update · executive cotton update u.s. macroeconomic indicators & the cotton...

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