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 estimates and forecasts for economic growth around the world each April and October. In their latest report, the IMF indicated that the acceleration in global economic activity that began in mid-2016 has broadened and strengthened. Current projections suggest that the world economy will expand 3.9% in both 2018 and 2019 (inflation-adjusted rates). Global growth has not been this strong since the rebound that followed the financial crisis. In 2017, U.S. GDP growth was 2.3%. The IMF predicts the U.S. will grow 2.9% this year and 2.7% in 2019. After growing 2.3% last year, the Euro Zone is expected to grow 2.4% this year and 2.0% in 2019 After growing 1.7% last year, Japan is expected to grow 1.2% this year and 0.9% next year. The estimates/forecasts for China are 6.9% in 2017, 6.6% in 2018, and 6.4% in 2019. The estimates/forecasts for India are 6.7% in 2017, 7.4% in 2018, and 7.8% in 2019. The Bureau of Economic Analysis (BEA) recently released its first (advance) estimate for U.S. GDP in the first quarter. This preliminary figure indicates that the U.S. economy expanded at a 2.3% annualized rate (adjusted for inflation) in the first three months of the year. In the fourth quarter, growth was 2.9%. The deceleration was primarily a result of weaker spending growth, which slowed from a 4.0% rate in the fourth quarter to 1.1%. Among spending categories, the largest quarter-over-quarter decreases were for autos and clothing. With the labor market strong and consumer confidence high, a possible reason for the deceleration in spending in the first quarter is that the acceleration in spending in the fourth quarter was too strong to build upon. Supported by spending on autos and clothing in the fourth quarter, consumer purchases surged from 2.2% to 4.0% (Q3 to Q4). The growth registered in the fourth quarter was the strongest in four years. A return to more normal rates of growth could explain some of the weakness in the figure for the first quarter of 2018. Spending growth (1.1%) in the first quarter ranks as the lowest in nearly five years. A contributing factor was that consumers saved more, with the savings rate rising from 2.6% to 3.1% quarter-over-quarter. Interest rates, as represented by bond yields, have been increasing, with yield on the 10-year Treasury note surpassing the three percent level for the first time since late 2013. There are several implications for rising interest rates. One is that savers can earn more on the money they put away, which is a positive. However, another implication is that it costs more to borrow, which can inhibit debt-supported spending. Interest rates also influence foreign exchange. The relative value of the dollar rose alongside 10- year Treasury yields, increasing about 5% since mid-april (ICE dollar futures market). Employment: The U.S. economy was estimated to have added 164,000 jobs in April. In combination, revisions to existing estimates indicate more jobs were added over the previous two months than previously believed (+30,000 overall). The figure for February was lowered from +326,000 to +324,000. The figure for March was increased from +103,000 to +135,000. For the first four months of 2018, job growth averaged 200,000. Over the same time period in 2017, job growth averaged 177,000. After holding at 4.1% for the previous six months, the unemployment rate fell below four percent (to 3.9% in April) for the first time since the year 2000. The year-over-year increase in wages was 2.6% last month, which is near the average in recent years. Early in the year, wage growth was stronger (near 2.8%) and there were hopes that wage growth was accelerating. Consumer Confidence & Spending: The Conference Board s Index of Consumer Confidence moved slightly higher in April, increasing 1.7 points from 127.0 to 128.7. Current values remain the highest apart from readings in 2000, when they were near 140. As reflected in GDP-related figures, growth in consumer spending was weak in the first quarter. Month-over-month changes in overall spending in both January (-0.2%) and February (-0.2%) were negative. In March, overall spending increased 0.4%. Yearover-year, overall spending was 2.9% higher in January, 2.7% higher in February, and 2.4% higher in March. For apparel, month-over-month spending was 2.2% lower in January, 1.7% lower in February, and 1.4% higher in March. Yearover-year, spending on clothing was 2.6% higher in January, 3.5% higher in February, and 2.8% higher in March. Consumer Prices & Import Data: Retail apparel prices decreased month-over-month in March (-1.1%). Year-over-year, retail apparel prices were 0.1% higher. Sourcing costs, as represented by cotton-dominant import value per square meter equivalent, increased 3.9% month-over-month in seasonally-adjusted terms. Year-over-year, cotton-dominant import costs were 5.2% 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
Executive Cotton Update U.S. Macroeconomic Indicators & Cotton Prices May 2018 Macroeconomic Data Quarterly Data Values in Recent Quarters 5-year 1-year 6-month 3-month Q3 : 2017 Q4 : 2017 Q1 : 2018 Unit Source Growth in US Real GDP 2.3% 2.1% 2.6% 2.3% 3.2% 2.9% 2.3% % Chg. Quarter/Quarter Department of Commerce Monthly Series with Latest Data for April Values in Recent Months 5-year 1-year 6-month 3-month February March April ISM Index of Manufacuring Activity 54.2 53.9 59.2 59.7 60.8 59.3 57.3 Index Institute for Supply Management ISM Index of Non-Manufacturing Activity 56.2 56.5 58.6 59.4 59.5 58.8 56.8 Index Institute for Supply Management Consumer Confidence 98.9 108.2 126.5 127.1 130.0 127.0 128.7 Index The Conference Board Change in Non-Farm Payrolls 209.3 203.4 216.2 211.7 324 135 164 Thousands of jobs Bureau of Labor Statistics Unemployment Rate 5.4% 4.7% 4.1% 4.1% 4.1% 4.1% 3.9% Rate Bureau of Labor Statistics Monthly Series with Latest Data for April Values in Recent Months 5-year 1-year 6-month 3-month February March April Unit Source US Interest Rates Federal Funds 0.4% 0.6% 1.3% 1.4% 1.4% 1.5% 1.7% Interest rate Federal Reserve 10-year Treasury Bill 2.3% 2.2% 2.6% 2.8% 2.9% 2.8% 2.9% Interest rate Federal Reserve Index of Leading Economic Indicators 98.5 101.9 107.5 108.5 107.9 108.7 109.0 Index The Conference Board Housing Starts 11.0 11.9 12.9 13.2 1.3 1.3 1.3 Annual pace, millions of units Department of Commerce Existing Home Sales 5.3 5.4 5.6 5.5 5.4 5.5 5.6 Annual pace, millions of units National Association of Realtors Industrial and Textile Data Monthly Series with Latest Data for March Values in Recent Months 5-year 1-year 6-month 3-month January February March Unit Source US Industrial Production 103.7 103.4 105.9 106.4 105.6 106.6 107.2 Index, 2002=100 Federal Reserve Polyester Fiber PPI 98.0 96.0 97.3 99.4 98.2 97.9 98.2 Index, December 2003=100 Bureau of Labor Statistics Monthly Series with Latest Data for February Values in Recent Months 5-year 1-year 6-month 3-month December January February Unit Source Bale Equivalence of US Cotton Yarn & Fabric Exports 3.2 3.1 3.2 3.2 3.2 3.2 3.2 million 480lb bales USDA ERS Monthly Series with Latest Data for March Values in Recent Months 5-year 1-year 6-month 3-month January February March Unit Source US Textile Mill Inventory/Shipments Ratio 1.24 1.24 1.25 1.26 1.26 1.26 1.26 Ratio Department of Commerce Retail Data Monthly Series with Latest Data for March Values in Recent Months 5-year 1-year 6-month 3-month January February March Unit Source US Real Consumer Spending All Goods and Services 2.8% 2.9% 2.7% 2.6% 2.8% 2.7% 2.4% % Chg. Year/Year Department of Commerce Clothing and Shoes 2.9% 2.6% 3.5% 3.0% 2.6% 3.5% 2.8% % Chg. Year/Year Department of Commerce Consumer Price Indices Overall 1.3% 1.4% 2.2% 2.3% 2.1% 2.3% 2.4% % Chg Year/Year Bureau of Labor Statistics Apparel -0.4% -0.5% -0.3% 0.2% -0.2% 0.6% 0.1% % Chg. Year/Year Bureau of Labor Statistics Monthly Series with Latest Data for February Values in Recent Months 5-year 1-year 6-month 3-month December January February Unit Source Retail Inventory/Sales Ratio Clothing and Clothing Accessory Stores 2.4 2.4 2.4 2.4 2.4 2.4 2.4 Ratio Department of Commerce Department Stores 2.1 2.1 2.0 2.0 2.0 2.0 2.0 Ratio Department of Commerce
Executive Cotton Update Daily Cotton Price and Currency Data May 2018 Daily Cotton Price Data Averages over Recent Months 5-year 1-year 6-month 3-month February March April Unit Source NY Nearby 72.2 69.4 78.2 81.2 77.9 82.7 83.0 cents/pound ICE A Index 80.4 78.4 88.2 90.8 88.3 92.0 92.1 cents/pound Cotlook Daily Currency Data Averages over Recent Months 5-year 1-year 6-month 3-month February March April Unit Source Dollar Trade Weighted Exchange Index 114.6 121.0 118.5 117.4 115.9 118.4 117.8 Index, January 1997=100 Federal Reserve Asian Currencies Chinese Renminbi 6.40 6.57 6.45 6.31 6.28 6.35 6.30 Chinese Renminbi/US dollar Reuters Indian Rupee 63.83 65.65 64.47 64.82 64.07 65.23 65.17 Indian Rupee/US dollar Reuters Japanese Yen 110.09 112.87 110.36 107.47 110.39 105.48 106.54 Japanese Yen/US dollar Reuters Pakistani Rupee 103.96 105.27 109.64 112.19 110.52 110.55 115.50 Pakistani Rupee/US dollar Reuters North & South American Currencies Brazilian Real 2.98 3.37 3.27 3.28 3.22 3.26 3.35 Brazilian Real/US dollar Reuters Canadian Dollar 1.22 1.30 1.27 1.27 1.24 1.29 1.28 Canadian dollar/us dollar Reuters Mexican Peso 16.27 18.18 18.80 18.56 18.54 18.90 18.24 Mexican Peso/US dollar Reuters European Currencies British Pound 0.69 0.73 0.73 0.71 0.71 0.73 0.71 British Pound/US dollar Reuters Euro 0.84 0.89 0.83 0.81 0.80 0.81 0.81 Euro/US dollar Reuters Swiss Franc 0.96 0.98 0.96 0.94 0.93 0.94 0.96 Swiss Franc/US dollar Reuters Turkish Lira 2.82 3.26 3.85 3.86 3.76 3.82 4.00 Turkish Lira/US dollar Reuters
Percent % Change from Previous Quarter 10 March 4, 2009 8 Growth in U.S. Real Gross Domestic Product 6 4 2 0-2 -4-6 -8-10 08:Q2 09:Q2 10:Q2 11:Q2 12:Q2 13:Q2 14:Q2 15:Q2 16:Q2 17:Q2 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 4 3 2 1 0 Source: Federal Reserve
Index Values over 50 Indicate Expansion Index Values over 50 Indicate Expansion ISM Index of Manufacturing Activity 70 65 Manufacturing Activity Manufacturing Employment 60 55 50 45 40 35 30 25 20 Source: Institute for Supply Chain Management 70 65 ISM Index of Non-Manufacturing Activity 60 55 50 45 40 35 30 25 Service Sector Activity Service Sector Employment 20 Source: Institute for Supply Chain Management
Index (1985 = 100) Index (2004 = 100) U.S. Leading Economic Indicators 120 110 100 90 80 70 60 Source: The Conference Board 140 U.S. Consumer Confidence 120 100 80 60 40 20 Source: The Conference Board
Percent Change in U.S. Civilian Employment 600 400 200 0-200 -400-600 -800-1000 Source: Bureau of Labor Statistics 11 U.S. Unemployment Rate 10 9 8 7 6 5 4 3 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Source: Bureau of Labor Statistics
Million Units Million Units U.S. Housing Starts 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Seasonally Adjusted Annual Rate; Source: Department of Commerce 6.0 U.S. Existing Home Sales 5.5 5.0 4.5 4.0 3.5 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Seasonally Adjusted Annual Rate; Source: National Association of Realtors
Ratio % Change from Year Ago U.S. Industrial Production - Overall & Textile 30% Total Textiles 20% 10% 0% -10% -20% -30% May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 Source: Federal Reserve. Historical data revised to 1997 baseline. 1.8 U.S. Textile Mill Inventory to Shipments Ratio 1.6 1.4 1.2 1.0 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Seasonally Adjusted; Source: Department of Commerce
December 1989=100 Million Bales US Cotton Yarn Exports 4.0 3.6 3.2 2.8 2.4 2.0 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Seasonally Adjusted Annual Rate Source: USDA ERS Bale Equivalence (SA annual rate) 120 Polyester Fiber Producer's Price Index 110 100 90 80 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Source: Bureau of Labor Statistics
% Change from Year Ago % Change from Year Ago 10% U.S. Real Consumer Spending - All Goods & Services 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% Seasonally Adjusted Annual Rate; Source: Department of Commerce *Based on chained 2005$. 10% 8% 6% U.S. Real Consumer Spending on Clothing 4% 2% 0% -2% -4% -6% -8% -10% Seasonally Adjusted Annual Rate; Source: Department of Commerce *Based on chained 2005$.
% Change from Year Ago Ratio 3.0 2.8 U.S. Retail Inventory to Sales Ratios Department Stores Apparel/Accessory Stores 2.6 2.4 2.2 2.0 1.8 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Seasonally Adjusted; Source: Department of Commerce Apr-15 Apr-16 Apr-17 Source: Department of Commerce 8% 6% U.S. Consumer Price Indices - Overall & Apparel Overall Apparel 4% 2% 0% -2% -4% May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 Source: Bureau of Labor Statistics
Current Month 5 Years Ago = 100 Current Month 5 Years ago = 100 Trade Weighted Exchange Index for U.S. Dollar 140 130 120 110 100 90 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Source: Federal Reserve Source: Federal Reserve 140 Asian Currencies vs. U.S. Dollar Pakistani Rupee Indian Rupee Japanese Yen Chinese Renminbi 120 100 80 60 40 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Source: oanda.com Source: Reuters
Current Month 5 Years Ago = 100 Current Month Five Years Ago = 100 North & South American Currencies vs.u.s. Dollar 130 Mexican Peso Brazilian Real Canadian Dollar 110 90 70 50 30 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Source: oanda.com Source: Reuters Index of European Currencies vs. U.S. Dollar 160 140 Euro Turkish Lira Swiss Franc British Pound 120 100 80 60 40 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Source: oanda.com Source: Reuters
Cents Per Pound U.S. Balance Sheet million 480 lb. bales 2013/14 2014/15 2015/16 2016/17 2017/18 2017/18 March April Beginning Stocks 3.8 2.4 3.7 3.8 2.8 2.8 Production 12.9 16.3 12.9 17.2 21.0 21.0 Imports 0.0 0.0 0.0 0.0 0.0 0.0 Supply 16.7 18.7 16.6 21.0 23.8 23.8 Mill-Use 3.6 3.6 3.5 3.3 3.4 3.4 Exports 10.5 11.2 9.2 14.9 14.8 15.0 Demand 14.1 14.8 12.6 18.2 18.2 18.4 Ending Stocks 2.4 3.7 3.8 2.8 5.5 5.3 Stocks/Use Ratio 16.7% 24.6% 30.2% 15.1% 30.3% 28.9% Year of Daily Cotton Prices 100 95 A Index NY Nearby 90 85 80 75 70 65 60 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 Sources: ICE Futures U.S. & Cotton Outlook