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

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Griffin Mason
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Executive Cotton Update U.S. Macroeconomic Indicators & the Cotton Supply Chain January 2018 www.cottoninc.

1 Executive Cotton Update U.S. Macroeconomic Indicators & the Cotton Supply Chain January Macroeconomic Overview: Over the past couple years, economic growth slowed in the fourth and first quarters and then picked up in the spring and summer. With early reports indicating that consumer spending (which represents about 70% of GDP) was robust throughout the holiday sales period, it looks like the strength that was picked up this spring and summer will carry through into the fourth quarter. Reports from MasterCard Spending Pulse indicate that spending (excluding autos) was up 4.9% between November 1 st and Christmas Eve (compared to 3.7% last year). Although brick-and-mortar sales were solid, and stronger than expectations, on-line spending drove most of the improvement relative to last year, with on-line sales up 18.1%. Apparel spending was reported to have increased 2.7%, with most of the gains being for men s and children s clothing. Another source (Market Track, which follows print promotion), indicated that discounting for apparel was at the same level as last year (39%). Macroeconomic data were virtually all good in The average monthly increase in payrolls (167,000) decreased slightly relative to the average in 2016 (192,000), but an eventual slowdown in hiring could have been expected given that many of those wanting to work are already working. The unemployment rate is at its lowest level in 17 years. Layoffs remain at their lowest level since the 1970s, when about half as many people were working. On-going improvement in the labor market, perpetually rising stock markets, and climbing home values have contributed to the highest level of consumer confidence since the early 2000s. The outlook for 2018 calls for more growth. The labor market continues to improve and inflation remains under control. A challenge for further growth in consumer spending is that the savings rate fell throughout With savings already being spent, consumers will only be able to further increase spending if they earn more, and wage growth has been stubborn, with the current rate of increase only slightly higher than the inflation rate. Possible sources of concern relative to the outlook for 2018 are that the Federal Reserve may too aggressively increase interest rates (interest rates remain at very low levels, three small increases are planned for 2018), that the stock market is in a bubble that might pop, as well as international concerns, such as a slowdown in the Chinese economy or that a conflict could erupt somewhere. The current expansionary period is already the third longest on record. In the history of the U.S., there has yet to be an expansion that lasted more than ten years. It has already been about eight and half years since the start of the latest period of growth (began in July 2009). Although the cause may prove difficult to identify ahead of time, time alone suggests that a recession could be expected to occur in the next few years. Employment: The U.S. economy was estimated to have added 148,000 jobs in December. Revisions to previous figures were mixed, with the estimate for October lowered from 244,000 to 211,000 and the estimate for November increased from 228,000 to 252,000. The average monthly increase in 2017 is 167,000. The average rate of increase in 2016 was 192,000. The unemployment rate was unchanged at 4.1% for the third consecutive month. Year-over-year, the unemployment rate is 0.6 percentage points lower, representing a decrease of 926,000 unemployed people. Decreases in the number of unemployed can result from hiring as well as people no longer looking to work. In December, 1.8 million more people were working than one year ago and half a million more people are no longer looking to work. Wage growth was 2.5% last month, which is below the levels between 2.6% and 2.8% which were common throughout much of The overall inflation rate was 2.2% in November (latest month with available data). Consumer Confidence & Spending: The Conference Board s Index of Consumer Confidence decreased 6.5 points (from to 122.1). Despite the decrease, the latest reading ranks among the highest posted since the early 2000s. Overall consumer spending was up 2.7% year-over-year and up 0.4% in the latest available seasonally-adjusted data (November). Spending on clothing was up 5.2% year-over-year, representing the strongest annual increase since May Month-over-month (seasonally-adjusted data), apparel spending was up 2.9%, which was the strongest monthly increase since Consumer Prices & Import Data: Retail apparel prices decreased 1.6% month-over-month and were down 1.4% year-over-year in the latest seasonally-adjusted data (November). The average cost per square meter equivalent of cotton-dominant imports was down 1.4% month-over-month in the latest seasonally-adjusted data (November). This decrease followed three months of slight increases. Average imports costs in November were 4.6% higher year-over-year. Weakness in the U.S. dollar throughout 2017 (broad trade-weighted index for the USD fell about 6% between January 2017 and the present) was a factor supporting import prices. 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

2 Executive Cotton Update U.S. Macroeconomic Indicators & Cotton Prices January 2018 Macroeconomic Data Quarterly Data Values in Recent Quarters 5 year 1 year 6 month 3 month Q1 : 2017 Q2 : 2017 Q3 : 2017 Unit Source Growth in US Real GDP 2.2% 2.1% 3.2% 3.2% 1.2% 3.1% 3.2% % Chg. Quarter/Quarter Department of Commerce Monthly Series with Latest Data for December Values in Recent Months 5 year 1 year 6 month 3 month October November December ISM Index of Manufacuring Activity Index Institute for Supply Management ISM Index of Non Manufacturing Activity Index Institute for Supply Management Consumer Confidence Index The Conference Board Change in Non Farm Payrolls Thousands of jobs Bureau of Labor Statistics Unemployment Rate 5.7% 4.9% 4.2% 4.1% 4.1% 4.1% 4.1% Rate Bureau of Labor Statistics Monthly Series with Latest Data for December Values in Recent Months 5 year 1 year 6 month 3 month October November December Unit Source US Interest Rates Federal Funds 0.3% 0.5% 1.1% 1.2% 1.2% 1.2% 1.3% Interest rate Federal Reserve 10 year Treasury Bill 2.2% 2.1% 2.3% 2.3% 2.4% 2.4% 2.4% Interest rate Federal Reserve Index of Leading Economic Indicators Index The Conference Board Housing Starts Annual pace, millions of units Department of Commerce Existing Home Sales Annual pace, millions of units National Association of Realtors Industrial and Textile Data Monthly Series with Latest Data for November Values in Recent Months 5 year 1 year 6 month 3 month September October November Unit Source US Industrial Production Index, 2002=100 Federal Reserve Polyester Fiber PPI Index, December 2003=100 Bureau of Labor Statistics Monthly Series with Latest Data for October Values in Recent Months 5 year 1 year 6 month 3 month August September October Unit Source Bale Equivalence of US Cotton Yarn & Fabric Exports million 480lb bales USDA ERS Monthly Series with Latest Data for November Values in Recent Months 5 year 1 year 6 month 3 month September October November Unit Source US Textile Mill Inventory/Shipments Ratio Ratio Department of Commerce Retail Data Monthly Series with Latest Data for November Values in Recent Months 5 year 1 year 6 month 3 month September October November Unit Source US Real Consumer Spending All Goods and Services 2.7% 3.1% 2.6% 2.6% 2.6% 2.5% 2.7% % Chg. Year/Year Department of Commerce Clothing and Shoes 2.7% 3.0% 2.8% 3.1% 1.9% 2.3% 5.2% % Chg. Year/Year Department of Commerce Consumer Price Indices Overall 1.3% 1.1% 2.0% 2.2% 2.2% 2.0% 2.2% % Chg Year/Year Bureau of Labor Statistics Apparel 0.3% 0.8% 0.7% 0.5% 0.0% 0.1% 1.4% % Chg. Year/Year Bureau of Labor Statistics Monthly Series with Latest Data for October Values in Recent Months 5 year 1 year 6 month 3 month August September October Unit Source Retail Inventory/Sales Ratio Clothing and Clothing Accessory Stores Ratio Department of Commerce Department Stores Ratio Department of Commerce

3 Executive Cotton Update Daily Cotton Price and Currency Data January 2018 Daily Cotton Price Data Averages over Recent Months 5 year 1 year 6 month 3 month October November December Unit Source NY Nearby cents/pound ICE A Index cents/pound Cotlook Daily Currency Data Averages over Recent Months 5 year 1 year 6 month 3 month October November December Unit Source Dollar Trade Weighted Exchange Index Index, January 1997=100 Federal Reserve Asian Currencies Chinese Renminbi Chinese Renminbi/US dollar Reuters Indian Rupee Indian Rupee/US dollar Reuters Japanese Yen Japanese Yen/US dollar Reuters Pakistani Rupee Pakistani Rupee/US dollar Reuters North & South American Currencies Brazilian Real Brazilian Real/US dollar Reuters Canadian Dollar Canadian dollar/us dollar Reuters Mexican Peso Mexican Peso/US dollar Reuters European Currencies British Pound British Pound/US dollar Reuters Euro Euro/US dollar Reuters Swiss Franc Swiss Franc/US dollar Reuters Turkish Lira Turkish Lira/US dollar Reuters

4 10 March 4, Growth in U.S. Real Gross Domestic Product 6 % Change from Previous Quarter :Q1 09:Q1 10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1 16:Q1 17:Q1 Seasonally Adjusted Annual Rate; Source: Department of Commerce *Based on chained 2005$. 8 7 U.S. Interest Rates Federal Funds 10 Year Treasury Bill 6 5 Percent Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Federal Reserve

5 ISM Index of Manufacturing Activity Index Values over 50 Indicate Expansion Manufacturing Activity Manufacturing Employment Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Institute for Supply Chain Management ISM Index of Non-Manufacturing Activity Index Values over 50 Indicate Expansion Service Sector Activity Service Sector Employment 20 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Institute for Supply Chain Management

6 U.S. Leading Economic Indicators Index (2004 = 100) Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: The Conference Board 140 U.S. Consumer Confidence 120 Index (1985 = 100) Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: The Conference Board

7 Change in U.S. Civilian Employment Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Bureau of Labor Statistics 11 U.S. Unemployment Rate Percent Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Source: Bureau of Labor Statistics

8 U.S. Housing Starts Million Units Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Seasonally Adjusted Annual Rate; Source: Department of Commerce 6.0 U.S. Existing Home Sales 5.5 Million Units Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Seasonally Adjusted Annual Rate; Source: National Association of Realtors

9 U.S. Industrial Production - Overall & Textile 30% Total Textiles 20% % Change from Year Ago 10% 0% -10% -20% -30% Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Federal Reserve. Historical data revised to 1997 baseline. 1.8 U.S. Textile Mill Inventory to Shipments Ratio 1.6 Ratio Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Seasonally Adjusted; Source: Department of Commerce

10 US Cotton Yarn Exports Million Bales Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Seasonally Adjusted Annual Rate Source: USDA ERS Bale Equivalence (SA annual rate) 120 Polyester Fiber Producer's Price Index December 1989= Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 Source: Bureau of Labor Statistics

11 10% U.S. Real Consumer Spending - All Goods & Services % Change from Year Ago 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% Jan-08 Seasonally Adjusted Annual Rate; Source: Department of Commerce *Based on chained 2005$. 10% 8% 6% U.S. Real Consumer Spending on Clothing % Change from Year Ago 4% 2% 0% -2% -4% -6% -8% -10% Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Seasonally Adjusted Annual Rate; Source: Department of Commerce *Based on chained 2005$.

12 U.S. Retail Inventory to Sales Ratios Department Stores Apparel/Accessory Stores 2.6 Ratio Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Seasonally Adjusted; Source: Department of Commerce Dec-14 Dec-15 Dec-16 Source: Department of Commerce 8% 6% U.S. Consumer Price Indices - Overall & Apparel Overall Apparel % Change from Year Ago 4% 2% 0% -2% -4% Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Bureau of Labor Statistics

13 Trade Weighted Exchange Index for U.S. Dollar 140 Current Month 5 Years ago = Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Source: Federal Reserve Source: Federal Reserve 140 Asian Currencies vs. U.S. Dollar Pakistani Rupee Indian Rupee Japanese Yen Chinese Renminbi Current Month 5 Years Ago = Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Source: oanda.com Source: Reuters

14 North & South American Currencies vs.u.s. Dollar Current Month Five Years Ago = Mexican Peso Brazilian Real Canadian Dollar 30 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Source: oanda.com Source: Reuters Index of European Currencies vs. U.S. Dollar Current Month 5 Years Ago = Euro Turkish Lira Swiss Franc British Pound 40 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Source: oanda.com Source: Reuters

15 U.S. Balance Sheet million 480 lb. bales 2013/ / / / / /18 November December Beginning Stocks Production Imports Supply Mill-Use Exports Demand Ending Stocks Stocks/Use Ratio 16.7% 24.6% 30.2% 15.1% 34.2% 32.0% Year of Daily Cotton Prices Cents Per Pound A Index NY Nearby 55 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Sources: ICE Futures U.S. & Cotton Outlook

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

Executive Cotton Update U.S. Macroeconomic Indicators & the Cotton Supply Chain May 2018 www.cottoninc.com Macroeconomic Overview: The International Monetary Fund (IMF) publishes comprehensive sets of