Some economists may rely upon qualifiers, but
Gherzi Textil Organisation's partner Bob Antoshak argues that despite rising
levels of employment, the US is already in a technical state of recession and
the rest of the world is following suit.
What a mess. For the past two quarters, US GDP has
declined and the same may be the case in Europe, although it hasn’t yet been
reported in the statistics.
Nevertheless, we’re slouching towards an economic world recession, if not a
slowdown. The International Monetary Fund (IMF) seems to agree as it just lowered its outlook for global economic
But at the moment, it’s a confusing picture. For instance, it’s rare to see
declining GDP with rising employment. Instead, GDP fell by 1.6% and 0.9% during
the first and second quarters of 2022.
In contrast, more than 500,000 jobs were filled in June, with
unemployment falling to just 3.5%. Good news on the job front, but we’re left
to ponder – why? The economy has contracted for the year’s first half, usually
equating to a smaller jobs market and higher unemployment.
This is hard to explain. But ever since Covid made its way through the
global population, many elements of the global economy appear to have fallen
out of sync. A prime example of this is buckled supply chains. As a result,
supply and demand seem out of whack, along with the business mechanisms
necessary for supply to successfully meet demand.
Nonetheless, despite all the doomsayers, it may be too early to say a
recession has descended upon us.
Strong employment but weak consumer confidence
Suffice to say, we may be on the cusp of a global recession, but we still
need more time to assess what’s truly going on. Moreover, other measures in the
US economy, which is still the world’s largest consumer market, defy the
gravity of declining GDP. Take personal consumption, for example – this key
measure of economic activity was up 1.1% in June, which is hard to explain when
the overall economy is considered.
That’s fine and good until we consider consumer confidence. It stinks.
Despite improvement in the employment sector (oh, and wages were up 5.2% in
July), consumer sentiment, as measured by the University of Michigan,
plummeted. Its consumer sentiment index stood at 51.5 in July, the lowest
measure since 2009, and a decline of 36.6% compared to July 2021. But there’s
another disconnect to consider – and that’s inflation.
It was just announced that the US consumer price index eased to
an annualised rate of 8.5% in July, as fuel prices pulled back from June
levels. However, apparel prices remained unchanged in July compared to June, as
annualised prices increased by 5.1%. Perhaps all the wage and employment gains
have been undermined by rising inflation. It’s insidious; frustrating for
central bankers and politicians alike.
And then there’s the average Joe left to fend off higher prices for
everything from food to fuel to clothing.
The US’ central bank (the Federal Reserve), raised federal fund rates in
late July by 0.75% to a range of 2.2%-2.5% and will likely raise rates again in
September by another 0.75%. These increases directly impact the cost of
consumer credit. What’s more, there could be more increases down the road.
Despite the uneven nature of economic reports these days, members of the
Federal Reserve have said that even more work needs to be done to tame
inflation. So yeah, the economy may have to flatline under sharply higher interest
rates to tame inflation.
The importance of retail amidst a world recession
Retailers hold the key to understanding how a recession will unfold — or
not. With consumer purchasing making up so much of the activity in developed
world economies, retailers are the first touch point to current and future
demand for products and services. Yet, US retail apparel sales fell nearly 5%
from May to June, according to the US Census Bureau.
Indeed, on the surface, this contradicts the top-line personal consumption
numbers stated above. Still, it also suggests that although retail consumption
remains positive, what consumers prefer to spend the inflation-weakened dollars
on are products other than apparel.
Something else to consider is the strong dollar. When gaining in value
relative to other currencies, US imports of products fall in value. Which
equates to lower prices for consumers. Add in the high inventories already
carried by clothing retailers, and we’re setting up for quite a holiday sales
Moreover, foreign investors are pulling their money out of developing
countries in favour of safer havens because of the strong dollar and global
uncertainty. The crisis in Sri Lanka is a prime example. As investors bailed on the
island nation, political and social turmoil ensued.
Nowhere can the uncertainty be most felt than at retail. With high
inventories, erratic demand, and rising costs, retailers are the poster boy for
what ails the economy today. There’s a lack of direction. So what to do when
discounting old inventory doesn’t work? I think I hear an old tried-and-true
And the latest financial results from a monster retailer like Walmart underscore
the problem. They have tons of inventory on hand and not enough
demand from their customers to offload the products. As a result, in its most
recent investor call, the retailer reported declining margins, weaker sales,
and overall poorer financial results. And others will report similar financial
Hence, retailers are caught in a squeeze between high inventories that may
prove challenging to sell to skittish consumers. For me this all signals a
What does the start of a world recession mean for apparel?
It’s hard for retailers to trust traditional supply chain paradigms after
getting burnt during the pandemic. So their solution: load up on even more
inventory now. But this is piling more clothing into warehouses that may never
be able to empty. Moreover, consumers continue to shy away from soft goods,
like apparel — no matter the price offered by the retailer.
High apparel inventories remain a problem. This is especially true when
consumers now buy more appliances, tech products, and services, like air travel
and restaurants, than they did clothing during the pandemic. Consequently, this
holiday sales season may turn ugly, like the past few years haven’t been tough
The war in Ukraine, which continues unabated, is lost in the economic news —
unless there’s talk of oil and gas shipments or grain exports. The resumption
of grain exports from Ukraine is a bright spot in an otherwise gloomy picture.
It eases concerns over global food shortages with Ukrainian shipments
previously blockaded at ports.
In case you’ve lost track of the war, it’s ongoing and painful for many
people. As the tally of casualties rises every day, so does global uncertainty.
Hear me out on this: the combatants are bombing another nuclear plant. Talk
about uncertainty! Need I say more?
As though the war in Ukraine wasn’t enough to deal with, we now have Chinese
aggression towards Taiwan. Increasingly it seems the Chinese navy will block
the passage of shipping through the well-travelled Taiwan Strait. Further,
so-called temporary Chinese military live-fire drills around Taiwan continue
longer than initially stated. These military exercises were initiated after
speaker of the US House of Representatives, Nancy Pelosi, departed from the
island after an unannounced visit as part of a wider Asian countries tour.
However, despite Chinese objections, why Pelosi visited Taiwan in the first
place remains a mystery – was it simply part of an Asian tour or was there more
to the visit?
Tensions between China and the US are high. Relations haven’t been this bad
for many years, which only adds to uncertainty in the global economy. Indeed,
Chinese actions around Taiwan look like an embargo of sorts. Of course, it
could also be a prelude to invasion. But, equally, it could be an activity to
placate Chinese nationalists, and the navy will be recalled. Whatever the true
meaning of China’s military manoeuvring, it’s not doing supply chains any good
at the moment.
China’s president, Xi Jinping, faces many internal problems. Nevertheless,
he may have painted himself into a corner by elevating the Pelosi visit to a
serious political matter. Seemingly his only option in response to the visit
was to come out swinging from his corner – missiles away.
World recession: turning the ship
There is so much gloom, but the world must find a way of snapping out of
this pandemic-induced malaise or risk economic calamity – or even worse.
All of this economic stuff may sound esoteric for some until we consider the
impact it is having on our industry. Sales are uneven, while inventories are
sky high. The industry is still dealing with supply chain inefficiencies and
supply and demand imbalances.
What’s more, the prospect of stagflation looms large, and US employment may
suffer if the Fed is too aggressive by causing a recession. It’s a tricky
balancing act. A 2% target by the Federal Reserve for inflation is a pipe dream
when rates currently top 9%.
We live in precarious times, and a confluence of political and economic
events leaves us in rough waters facing an uncertain future. Let’s hope we can
somehow turn this ship around before we run aground.
Last month Antoshak said the cotton market had already called the next
recession and explained when the world is in recession low prices for fashion
won’t matter as much as demand for products and services will dry up except for
By Just Style