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Business & Financial
Robert S. Reichard, Economics Editor

The Weakening Business Climate

By Robert S. Reichard, Economics Editor

G rowing concern about the 2008 general business picture is raising some new questions and fears as to how our textile and apparel industries will fare over the next few quarters. It's pretty clear, for example, that most consumers are beginning to tighten their purse strings - reflecting the negative effects of both the subprime mortgage meltdown and today's $3-per-gallon and higher gasoline prices.

If nothing else, buyer confidence has taken a hit. Nevertheless, Textile World continues to remain cautiously optimistic that a full-blown business correction can be avoided. The Fed, for example, has already taken steps to brake any slide by continuing to lower interest rates. Washington lawmakers, fretting about the impact of a business slowdown on the upcoming November elections, also are taking action, in the form of new fiscal simulae, to jump-start our shaky economy. That's not to say, of course, that these current problems won't result in somewhat lower-than-hoped-for first- and second-quarter textile shipments. But despite this, TW still sees only a modest overall decline in mill activity for the year as a whole - something only in the 4-5 percent range, and actually a bit less than the slippage noted over the past year. Also on a reassuring note: While overall retail clothing sales slipped during the latest reported month, December, they still managed to stay some 2-percent ahead of year-earlier levels. Implication: Big-ticket consumer items - rather than apparel - are bearing the brunt of the current consumer slowdown.


Changing Import Trends

Still another potentially positive sign: decelerating textile and apparel import gains. Indeed, the latest monthly government report shows incoming totals on a square-meter-equivalents basis actually running fractionally under year-earlier levels. If nothing else, it represents a refreshing change from the steady tattoo of increases recorded over the past few years. To be sure, one month doesn't make a trend. And TW certainly does not expect negative numbers to become the norm. On the other hand, it does seem to suggest that 2008 incoming textile and apparel shipments may not turn out to be all that much above last year's total. Part of this import deceleration reflects the fact that overseas producers have already captured the lion's share of these industries' vulnerable commodity markets - making further import penetration considerably more difficult. Another part of the import slowdown can be attributed to the growing success of domestic mills and manufacturers in establishing niche markets that are a lot less sensitive to cutthroat overseas competition. Finally, today's somewhat smaller import gains may also be a reflection of an improving international exchange rate situation - one where a generally weaker dollar is making it somewhat more expensive for Americans to buy overseas textile and apparel items. Indeed, there is already some evidence of this kind of price effect - with Uncle Sam's import price index for basic textile products now running some 4 percent above year-ago levels.

A Closer Look At Exchange Rates

The fact that currency rate swings have tended to show significant country-by-country differences can't be ignored either. Indeed, in many cases, such changes are forcing major shifts in global procurement strategies. One case in point: India, whose currency - the rupee - has jumped 11 percent vis-à-vis the dollar over the past year. This rupee runup, by driving up the cost of Indian apparel, has been forcing US buyers to shift procurement over to neighboring countries like Pakistan, Bangladesh and Sri Lanka - nations whose currencies are now a lot cheaper.

One JCPenney buyer perhaps best sums it all up: "If we don't get the right price in India, we will move elsewhere." Nor is India the only glaring example of sizable exchange rate swings - shifts that are making for significant changes in buying patterns. Thus, the better-than 10-percent and 7-percent appreciations of the euro and the yuan, respectively, over the past year are having some impact on trade flows from these countries as well.

Perhaps the most important change may now be occurring in China - the United States' major source of textile and apparel imports. Note, for example, that Beijing's currency jumped a surprisingly large 2.3 percent during the final two months of 2007. Add that onto earlier 2007 gains, and the yuan's value has advanced some 7 percent in just one year. Moreover, go back to July 2005, when the yuan was first unpegged from the dollar, and the yuan is up a sizeable 13 percent. All this may already be having some impact on imports from that nation. Incoming Chinese textile and apparel shipment gains are now running well below the double-digit levels of the previous few years.

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