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Business & Financial
Robert S. Reichard, Economics Editor

Price Sluggishness Persists

Robert S. Reichard, Economics Editor

T here’s good news and bad news: Textile production may be beginning to level off. However, there’s precious little to suggest this bottoming out in industry output is spreading into the price sphere. Thus, Textile World’s overall textile industry price index actually is running about 1 percent under the already-depressed levels that prevailed just a few months ago.

Zero in on greige goods and the decline is even more disturbing — averages here currently run close to 2 percent below levels prevailing late last winter. Even more unsettling: Compare current overall textile price averages to those prevailing as long ago as 1998, and the decline has been something in the order of 4 percent.

All this is in sharp contrast to the all-US finished goods wholesale price level, which has advanced by 10 percent over the same period. Nor is any major change anticipated in this price climate. Indeed, given current conditions, it would be unrealistic to expect more than a flat to 0.5-percent rise in overall textile tags over the next six months or so.


Behind This Shakiness

The reasons for this price easiness aren’t that hard to find. Overseas competition, of course, is the major culprit, as the flood of cheap imports continues to make the posting of meaningful domestic increases all but impossible. But these imports aren’t the only price-hike-inhibiting factor. There’s also continuing domestic overcapacity.

Indeed, despite the spate of recent mill shutdowns, the domestic industry currently produces at only about 72 to 73 percent of its potential, a far cry from the peak 1994-95 operating rate of nearly 91 percent.

Another contributing factor to the currently shaky price climate would have to be the absence of significant upward cost pressures — as both labor and fiber expenses remain at or lower than levels prevailing just a few years ago.

And, last but not least, today’s powerful downstream pressures are exerted by both apparel makers and retailers as they deal with their own inability to post price increases.

A Closer Look At Costs

Coming back to the mill level, costs are one of the few favorable trends the industry can point to. In the fiber area, the latest raw cotton quotes actually have dropped by 10 cents per pound or more from the higher levels of just a few months ago. Indeed, they’re now not all that much above where they were last year at this time. Wool, too, has remained fairly stable, and man-made fibers haven’t been hurting the mills that much either — with price averages here off about 0.5 percent from just one year ago.

The decline over this period has been a lot more meaningful in some areas, such as textured polyester (knits). Labor costs haven’t presented too many problems, with average mill hourly pay up only about 3 percent over the past year. Offset this with a similar gain in productivity, and unit labor costs have probably remained pretty much unchanged. Thanks to this absence of cost pressures, profits (at least on the industry average basis), have avoided sliding into the red. Third-quarter after-tax numbers have remained in the plus column — thus virtually assuring a small advance for the year as a whole.

Some Positive Near-Term Signs

The rest of the year isn’t likely to be that bad either. There’s the momentum of the past few quarters, which would seem to guarantee continued economic gains through spring, summer and fall.

Equally important, this is an election year — and politicians will be loathe to do anything that might rock the economic boat. This means interest rates are likely to remain near their current historic lows.

Lawmakers also will try to avoid moves that would exacerbate our already troublesome foreign trade deficit. Therefore, they’re sure to think twice or even three times before okaying the Central American Free Trade Agreement and other controversial new trade pacts. Politicians also could take more positive steps to put a cap on further import gains from China as the January 2005 quota-ending date approaches.

China, for its part, also seems a little more cooperative these days. Some sources have hinted the nation may consider a modest upward revaluation of its currency, which could begin to slow down the accelerating flood of incoming Chinese textile and apparel shipments.

March 2004

Related Files:
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