U.S. Macroeconomic Indicators & the Cotton Supply Chain

Rising wages can also support growth in consumer spending. Along with savings accumulated with the stimulus released after the pandemic, recent increases in income likely contributed to the strength in consumer spending in recent years. Consumer spending on clothing has been relatively flat since the first quarter of 2021. Still, it remains at a level nearly 25% higher than it was in 2019 (over the longer term, the average rate of growth in consumer spending on apparel is around two percent, so current spending levels are likely higher with the pandemic and stimulus than they would have been under more normal conditions).

Nonetheless, rates of growth for wages have not been keeping up with overall inflation since June 2021. This has had several implications for consumers. One is that savings rates have plummeted. After the financial crisis and before COVID, savings rates fluctuated between five and ten percent. In the aftermath of COVID, and with stimulus payments, saving rates climbed to record levels, forming one peak of over 33% in April 2020 and another of over 25% in March 2021. Since then, the savings rate has moved sharply lower. Savings rates have been below five percent since the start of the 2022 calendar year, and there have been months when the savings rate was less than three percent.

Consumers may still be holding on to savings accumulated during the pandemic, but with wage growth slower than inflation, those savings are being drawn down to support spending. Further evidence of this comes from data from Federal Reserve regarding credit card debt. After declining -11.2% in 2020, the volume of revolving debt tracked by the central bank, which is primarily for credit cards, increased by 15.5% in 2022 (growth was 6.9% in 2021, and it was near 4.5% in 2018 and 2019). In recent earnings reports, several of the largest U.S. retailers voiced concern about the trajectory of consumer spending given stubborn inflation and rising interest rates. However, was not a shortage of forecasts released over the past year that suggested the U.S. would already be in a recession, and a sharp contraction has yet to surface. Uncertainty persists about whether a more severe downturn may be coming. In one corner, there is the resilient labor market. In the other corner, there is stubborn inflation and rising interest rates.