The costs of raising children in the U.S. continue to climb

On June 14th, the United States Department of Agriculture (USDA) released its 2011 cost estimates for raising children in the U.S. (see “A Child Born in 2011 Will Cost $234,900 to Raise According to USDA Report“). According to this report, the average cost of raising a child in the U.S. rose 3.5% from 2010 and rose 22.5% from 1960 (in 2011 dollars), the first year these data were collected. (Note the USDA cautions that its methodology has changed over the years so comparisons between now and 1960 are not “precisely comparable). The share of expenditures has changed dramatically in certain categories like child care and education, food, and health care. The following chart is from the end of the publication (click image for a larger view), and it demonstrates the big differences in how children are raised now versus 50 years ago:

Expenditures on a child from birth through age 17, total expenses and budgetary component shares, 1960 versus 2011

Expenditures on a child from birth through age 17, total expenses and budgetary component shares, 1960 versus 2011

The amount families spend on children varies greatly based on household income, so these averages hide even more interesting stories. For example:

“A family earning less than $59,410 per year can expect to spend a total of $169,080 (in 2011 dollars) on a child from birth through high school. Similarly, middle-income parents with an income between $59,410 and $102,870 can expect to spend $234,900; and a family earning more than $102,870 can expect to spend $389,670.”

It is clear from the report that the costs increase according to income because of choices families make. Thus, it is not quite accurate to say child-rearing gets more expensive with income. Instead, families tend to choose to spend more on their children the more income at their disposal.

Read/download the full report here.

High prices for cotton could soon add to the squeeze on food prices

In “Amber Waves to Ivory Bolls“, the NY Times describes the general rush of farmers to plant fields of cotton in the U.S., Brazil, and other countries to take advantage of the high prices of cotton despite the high prices of other food crops. This wave could place further upward pressure on the prices of food as clothing makers win the battle for acreage.

The NYT includes a particularly poignant quote from Webb Wallace, executive director of the Cotton and Grain Producers of the Lower Rio Grande Valley:

“It’s good for the farmer, but from a humanitarian perspective it’s kind of scary…Those people in poor countries that have a hard time affording food, they’re going to be even less able to afford it now.”

It could be another year of discontent for those people whose budgets are largely consumed by the costs of food.

The cotton ETN, BAL, cotninues to soar

The cotton ETN, BAL, cotninues to soar

Inflation may loom as material costs pressure earnings

In “Business Earnings Climb Despite Rising Costs“, the WSJ reports that companies reporting third quarter results are starting to sing a common refrain: material costs are rising fast and threaten to pressure profits. Soon, these pressures could translate into inflation at the consumer level…just as the Federal Reserve is rolling out a second phase of quantitative easing to fight the exact opposite force of deflation.

The article cites inflationary (or stagflationary) examples from paper and packaging makers, apparel manufacturers, tire companies, and office supply distributors.

Avery Dennison Corporation is experiencing particularly acute problems with higher material costs:

“Label maker Avery Dennison Corp. is battling higher raw material costs with price hikes, but is still losing ground. CFO Mitchell Butier said while the company keeps adding more price increases to fight rising raw materials, it continues ‘to be behind that curve.’ The company announced a ‘mid to high single-digit’ price increase in North America, Chief Executive Dean Scarborough said. ‘Pretty substantial…but we need it. Our margins are really taking a hit,’ he added.”

Brace for higher clothes prices

In “Unable to Stretch Further, Apparel Makers Raise Prices“, the WSJ notes that surging prices for cotton will force apparel companies to hike clothes prices next year even if consumer demand remains sluggish:

“Hanesbrands Inc, Jones Group Inc. and VF Corp. said they will raise prices for clothing set to hit stores early next year by as much as 10%. When cotton prices began their climb a year ago, retailers and manufacturers were unclear how much—if any—of the cost would be passed along to consumers. But with benchmark cotton now up about 80% since the beginning of the year, apparel companies say they no longer have a choice.”

…and polyester will not provide any pricing relief:

“Companies can’t blend their way out of the problem. Polyester prices are also rising, climbing between 20% and 25% this year driven by oil prices and higher demand from manufacturers switching away from cotton.”

Jones Group, VF Corp. plan to raise clothing prices

Dow Jones Newswire reports that two apparel companies are planning to hike prices in response to higher commodity costs:

Jones Group Inc.’s (JNY) disappointing third-quarter results sparked a sell-off in the apparel sector Wednesday, as soaring raw material costs weighed on margins and sparked fears ahead of a slew of upcoming earnings reports in the group. Apparel makers and retailers had generally been optimistic about how they plan to mitigate rising raw materials costs. Cotton prices, for one, have repeatedly reset all-time highs in recent weeks as uncooperative weather in key cotton-producing regions has squeezed inventories since the beginning of the year But fears were stoked Wednesday after Jones Group’s margins contracted to 33.5% from 35.6% due to the higher costs. Cotton prices, meanwhile, hit an all-time record high of $1.305 a pound on Tuesday. Jones Group shares tumbled 22.6% to $15.10 in recent trading, dragging down other apparel stocks such as VF Corp. (VFC), Liz Claiborne Inc. (LIZ), Volcom Inc. (VLCM), Guess Inc. (GES) and Hanesbrands Inc. (HBI), all of which were down between 3.5% and 7% on higher-than-average trading volume… Jones Group Chief Executive Wesley Card said on a conference call that the company will look to offset the higher cotton costs by raising prices on its products–considered risky with continuing signs of belt-tightening among consumers. Similar concerns are haunting apparel company VF Corp. During its third-quarter earnings call last week, Chief Financial Officer Richard Shearer noted cotton prices are likely to rise to higher levels than the company envisioned, and it’s planning for selective price increases.

Jones Group has a bunch of brands I’ve never heard of. VF Corp. makes Lee and Wrangler Jeans.