Consumer prices for apparel took a notable reversal relative to costs in the recent month. It’s not a full-out Bear move. But it is a definite item that anyone that keeps models on companies in this space needs to watch.
After accelerating for 3 months in a row, the year over year growth in apparel CPI slowed sequentially in May +4.45% vs. +5.12% in April. This is an important call-out, because as of last month, import cost trends continued to decline, while consumer price changes set 30-year highs. Now we have consumer prices moving in the same direction as unit costs. Of course, it does not get truly bearish until the CPI falls below the import cost change. No one in their right mind is planning for this – it’s not the kind of thing you plan for given that it is usually a function of irrational competitive behavior or a sequentially weakening consumer (or both). But given where margin expectations are for some companies, we think that the change in these two Macro metrics is more important now than at any point since the recession.