Little Near-Term Import Relief
Robert S. Reichard, Economics Editor
Imports Beyond 2010
On a rosier note, however, this new import surge should slow down over the longer pull. For one, the anticipated creep-up in Beijing's yuan -- while far under the 25- to 40-percent appreciation most analysts feel is needed to correct the current imbalance -- will over time add up to a meaningful number. Note, for example, that a similar Chinese currency policy from 2005 to 2008 resulted in a sizeable 21-percent gain in the yuan vis-à-vis the dollar. There are also other factors at work that might slow down our demand for Chinese products -- the most notable of which is that nation's accelerating increase in wage rates. Pay levels there are already running anywhere from 5 to 15 percent above beginning-of-year levels. Zero in on the coastal province of Guangdong, a hub for apparel manufacturing, and wage gains are now near 20 percent. Further add in rising costs of raw materials, transportation and pollution control -- and Chinese apparel tags may rise as much as 5- to 10-percent over the next 12 months. That should be enough to make U.S. companies take another look at their overall sourcing strategies. But don't expect any miracles -- certainly nothing that would result in any actual import shrinkage. That's because rather than shifting back to domestic production, virtually all major American firms are now considering shifting some of their sourcing to other low-cost suppliers like Vietnam, Indonesia, Pakistan, India and Bangladesh. The CFO of one of the nation's largest retailers sums it up, noting that his company is already busy working with its top 15 suppliers to find cheaper foreign sources. Other firms tell pretty much the same story -- suggesting some major changes in industry sourcing over the next few years are virtually inevitable.
Gauging The Macro Impact
The strength of underlying domestic demand is another problem that industry executives continue to wrestle with these days. The basic unknowns: How fast will the economy grow, and how will it all impact textile and apparel activity? As of now, the prognosis is basically positive. Newly revised International Monetary Fund forecasts, for example, now see the U.S. economy advancing 3.3 percent this year -- actually a bit faster than its earlier 2.7-percent projection. And while some leveling off to 2.9 percent is anticipated for next year, that, too, would still be a respectable gain. Several factors are behind this cautious optimism. They include: higher-than-a-year-ago household net worth; falling consumer debt -- the amount owed by average credit card holders is now running 10-percent under a year ago; the modest amount of government economic stimulus still in the pipeline; strong growth in Asia -- something that could help bolster our exports; and the huge amount of cash in corporate coffers -- money that could stimulate additional business spending. All the above would seem to guarantee at least a 3-percent rise in real consumer spending this year. More important, retail apparel sales seem to be doing even better than that. Latest monthly totals, for example, are running close to 6 percent ahead of a year ago.
Download Current US Textile And Economic Indicators.