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Business & Financial
Robert S. Reichard

2006: Not All That Bad

By Robert S. Reichard, Economics Editor

T here’s a glimmer of light at the end of the tunnel. That’s not to say further industry contraction can be avoided — it can’t. On the other hand, there are increasing indications the hemorrhaging of 2005, when imports from China soared an eye-opening 50 percent, is finally being staunched (See “Surviving The Game Of Textiles,” TW, this issue). Credit this brighter picture to more pressure on China to keep its shipments to the United States within bounds, new domestic strategies to cope in today’s rapidly changing global marketplace and the general consensus that gross domestic product gains of the past few years will spill over into 2006 and thus keep demand rising. There are few indications of any big new plunge — with Textile World’s new forecast calling for only about a 3-percent decline in overall textile mill activity over the new year. While the decline in overall textile mill activity is likely to be more in the order of 7 percent, that’s still nowhere near the gloom and doom forecasts that grabbed headlines over the last year.


Trade Uncertainties

All the above doesn’t mean, however, that it’s going to be clear sailing from here on in. There will be a lot of dangerous international straits to navigate in the years ahead. The biggest question is how rigorously Beijing will follow through on its recent promises. It’s also unclear just how significant imports from other foreign suppliers will be — especially as they move to take advantage of the new Chinese import curbs. Another trade worry: fears that our overseas competitors will move to higher-end products — an area where the United States has so far managed to hold its own. Then there’s the Doha Round of negotiations that involves such key issues as reciprocal tariff reductions, the elimination of nontariff barriers and the curtailment of illegal trade practices. Finally, there is concern about what happens after 2008, when current safeguard rules expire. Some new sort of protection for US domestic producers will be needed at that time. But despite all the above, TW remains confident its cautiously optimistic industry predictions will prove realistic.

A Look Back At 2005

TW was pretty much on target as far as calling last year’s industry performance. At a time when nearly everybody called for major declines , TW predicted only about 2-percent slippage in combined dollar shipments of basic mill and textile mill products. The actual fall was only in the order of 2.5 percent. The aggregate textile and apparel import estimate didn’t fare all that badly either. True, Chinese shipments did take off. But this was to a significant extent offset by substantial declines in other countries such as Taiwan, Hong Kong and Korea — all of which saw their textile and apparel exports to the United States slip by more than 10 percent. The result was an actual US import increase of only 10 percent on a square-meters-equivalent basis — not much more than the 8-percent increase of 2004. TW wasn’t all that much off the mark in calling the turn in textile producer profits either. A year ago — in the face of red-ink projections — TW predicted after-tax profits should be just fractionally under 2004 levels. Preliminary estimates for 2005 suggest TW was on the conservative side — with totals now pointing to a small increase to just over $1 billion.

Statistical Note

The Federal Reserve Board has switched the index base for its textile production index — with a new 2002=100 base replacing the 1997=100 comparison year. While the new approach hasn’t changed the overall trend in this key industry measure to a great extent, the overall index readings are somewhat higher. But that’s only because TW is now comparing any given month’s production level to a smaller base level —2 002 production was lower than that recorded in 1997. The implication is overall index readings are higher. Behind the change: The year 2002 is regarded as being a more up-to-date and useful yardstick for comparing changes in the level of output. The revised readings emphasize TW ’s contention that the industry really hasn’t fared all that badly — with textile activity down only about 8.2 percent since 2002 and only around 1 percent vis-à-vis year-ago levels.

January/February 2006


Related Files:
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