An Analysis of the Short and Long-Run Relationships in the Garment Retail Market: Is There a Trend Toward Convergence in Fashion?

Mine Aysen Doyran

Abstract


This paper examines the main trends in the U.S. garment industry concentrating on the fashion retail sector over the period 1992/Q1-2013/Q4. Using FRED retail data, summary statistics and time-series analysis, we investigate the dynamic interrelationships among three price indices in the apparel market— Consumer Price Index (apparel inflation rate) (CPI), Import Apparel Price Index (IMPX) and Personal Consumption Expenditures (PCE) in Clothing and Footwear. Our findings indicate that there exists a long run, steady relationship among the variables under consideration as indicated by the negative and significant sign of error correction term (ECT). Individually, PEC has a short-run (positive) effect on price increase/decrease for consumers (CPI) whereas IMPX is statistically insignificant. While fashion had traditionally been thought of as having a short-run impact (cyclical) and not long-run (growth or trend), the results indicate that the three price indices are converging over time but at a very gradual pace. The paper concludes by stressing the uses and limitations of time-series analysis for decision-making in this sector.

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