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Business & Financial
Robert S. Reichard

Reassessing Textile Activity

By Robert S. Reichard, Economics Editor

D eclining textile output hasn’t been nearly as bad as previously indicated. The just-revised Federal Reserve Board index of mill production tells the story showing overall 2006 output down only about 7 percent from levels prevailing in 2002, the index’s base year. That’s considerably better than the 11-percent drop-off reported just before the newly released government revision. The revised data — now incorporated in TW ’s “Textile Barometers” section — also suggests that since 2002 mill output has been falling at only a 1.75-percent annual rate. Moreover, this more encouraging assessment is confirmed by another TW yardstick — manufacturers’ shipments. On an overall basis — basic textiles plus more highly fabricated textile products — the decline here has been in the order of 7 percent over the past four years, or again only about 1.75 percent at an annual rate.

While hardly nirvana, these statistical indicators of textile activity provide some encouraging evidence that US mills are surviving, even in the face of the Chinese import surge of the past few years. This somewhat brighter activity picture has, in turn, helped push up the overall textile mill utilization rate by a few percentage points — from a pre-revised 74.6 percent to a new, higher 77.4-percent figure. Other things being equal, this higher operating rate would seem to bode well for textiles, making it a little less difficult for mills to maintain price and profit levels. With less unused capacity to contend with, the industry should be more inclined to continue spending on new, more productive plants and equipment.

2007 Off To A Good Start

Nor are these trends likely to change anytime soon. For one, mills report orders are still coming in at a respectable clip. And there’s little to suggest this pattern won’t continue — as downstream apparel activity holds up quite well. Indeed, one new report from the Institute of Supply Management finds apparel production and orders have actually been picking up of late. Still another indicator of industry health: There are relatively low inventory levels on both textile and apparel levels. Other things being equal, this suggests that any new textile ordering will be met by new production rather than inventory drawdown. Today’s still-rosy macro-economic outlook also adds to overall industry optimism. One encouraging sign here: The results from a recent Business Week survey of 58 top-tier business analysts point to continued economic growth, with the 2007 gross domestic product advance put at 2.6 percent over the next four quarters. To be sure, that’s a notch lower than the 3-percent-or-so gain of the past year. On the other hand, this should be offset by the fact that the pace of increase is expected to pick up as the year wears on. Add in the impacts of recent energy cost declines, a low unemployment rate, no appreciable inflation, rising inflation-adjusted incomes and relatively flat interest and mortgage rates, and there should be ample money around to feed purchases of apparel and other consumer goods. TW ’s projection here: about a 3 to 4-percent increase in 2007 total consumer outlays.

 Trade Problems Persist

But one king-sized headache remains: the United States’ huge and still-growing trade imbalance. True, the past year saw only a 3-percent increase in incoming textile and apparel shipments on a square meter equivalents basis. But this was considerably more than the fractional 0.8-percent increase in our exports. Moreover, because import totals were so much larger than exports, the trade deficit continued to balloon, with the textile and apparel shortfall jumping about $2 billion to near $81 billion — double the figure of a year ago.

As might be expected, China was the major factor behind this burgeoning red-ink number, with 2006 imports from that nation rising another 10 percent. Viewed from another perspective, imports of Chinese-made textiles came to well over 18,000 million square meters — enough to account for some 35 to 40 percent of the United States’ entire imports of these products. To be sure, TW does anticipate some import deceleration in 2007. But don’t expect miracles, considering the fact that any further upward revaluation of the yuan is expected to be modest — something on the order of 3 to 5 percent. Bottom line: Even if this figure is correct, it would still mean only about a 9- to 10-percent upward revaluation since mid-2005, when the yuan first began to inch higher. True, this is some progress, but it’s nowhere near the 30-percent-and-higher upward currency shift most financial experts say is needed to level the playing field and give US products a fighting chance in the international marketplace.

February 27, 2007

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