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Economy Continues Growing But Is it Helping Apparel?

Growth in the U.S. economy is expected to continue through the first half of 2020, but whether that will translate into consumer spending on apparel is up for debate.

The Conference Board on Thursday disclosed that its Leading Economic Index for the U.S. rose 0.8 percent in January to 112.1. That gain followed a 0.3 percent decrease in December and a 0.1 percent increase in November. The components of the LEI were mixed in January, with the Coincident Economic Index up 0.1 percent to 107.3 in January, while the Lagging Economic Index was unchanged at 108.7. Both indices are part of the LEI’s data system to measure the ups and downs in a business cycle.

“The LEI’s six-month growth rate has returned to positive territory, suggesting that the current economic expansion–at about 2 percent–will continue through early 2020,” Ataman Ozyildirim, senior director of economic research at The Conference Board, said. “While weakness in manufacturing appears to show signs of softening, the COVID-19 outbreak may impact manufacturing supply chains in the U.S. in the coming months.”

While the thinking is that a decent level of inventory inputs will provide the U.S. with a bit of cushion on the manufacturing side, how long that will last hinges on how long coronavirus containment procedures continue in China.

Ozyildirim believes the strong pickup in January’s LEI stems from a sharp drop in initial unemployment insurance claims, increasing housing permits, consumers’ outlook on the economy and financial indicators. The Conference Board reports on its Consumer Confidence Index on Tuesday.

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While U.S. economic expansion is expected to continue for the first half of 2020, there’s some concern that consumer spending on apparel could slow in the coming months.

A UBS report from its Evidence Lab series using data related to consumer behavior, collected on a monthly and quarterly basis, suggests sales growth could plateau by spring. The data compilation is forecasting the sales growth rate to stabilize around 2.5 percent by April. The catch is that the data pointing to a positive growth rate could be short lived.

“We think a big reason for the projected acceleration is easy comparisons,” Jay Sole, UBS retail analyst, said, adding that data for low- and medium-income consumers, as well as young people, looks weak. That tilts the UBS retail team’s view to the bearish side.

Global brands will likely continue to benefit from international gains, while department store sales will continue to remain lackluster, the team concluded. The retail team collects input from consumers, which it deems a better indicator of projected soft goods sales.

“Many leading indicators lost their predictive power after the 2008 recession,” Sole said.

The UBS retail team’s perspective stands in contrast with the 90-day forecast of U.S. apparel and accessory store sales based on U.S. government economic data, which expects an improving growth rate over the first months of 2020.