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Business & Financial
Robert S. Reichard, Economics Editor

Growing Economic Question Marks

By Robert S. Reichard, Economics Editor

U ncertainty about overall business activity has heightened in recent days in the wake of the big sub-prime mortgage meltdown. Add in continuing close-to-$3-per-gallon gasoline, and some analysts feel the current business upturn could be in jeopardy.

Textile World thinks these fears are overblown. Troubled mortgages constitute a relatively small portion of the overall US economy. Equally important, three key indicators of basic business health remain positive: inflation — price hikes continue to average in the low 2- to 3-percent range; wage pressures — Uncle Sam’s employment cost index rose less than 1 percent in the second quarter; and consumer confidence — this continues to get a boost from plentiful jobs. Gross domestic product gains could continue through the third and fourth quarters — though advances aren’t likely to reach the 2- to 2.5-percent annual rate predicted a few months ago. Best bet now: a 1.5- to 2-percent average increase through year-end.

Not great, but probably enough to ensure continuing gains in the production and shipment of textile, apparel and other consumer products.

Import Gains Slow

There’s also some encouraging news on the trade front, where latest figures suggest the industry is making progress in stemming the import tide. First-half 2007 incoming textile and apparel shipments on a square-meter-equivalents basis ran only 2.3-percent above the comparable

period last year. That’s far under the 10-percent, 8-percent and 11-percent increases racked up in 2003, 2004 and 2005, respectively. These new, smaller advances are in line with domestic demand growth. Domestic mills and factories are no longer losing market share like they were a few years ago, but China continues to buck this decelerating trend. Witness, for example, the year-to-date 20-percent hike in textile and apparel imports from that nation.

The big question, of course, is, will this pace continue? The answer: probably not. TW is hopeful some slowdown in Chinese imports may be in the offing — if not over the next few months, then by 2008. While the Chinese yuan is still grossly undervalued, its upward movement is now approaching 10 percent, which makes Chinese imports a bit more expensive. This trend is expected to continue as US lawmakers put more pressure on Beijing. Also encouraging are signs Washington is paying more attention to the dumping of Chinese products. Thus, 27 percent of the US Department of Commerce’s anti-dumping orders now involve exports from China, even though that nation supplies only 15 percent of the United States’ overall imports. In addition, a flood of US manufacturers have filed complaints that China has illegally subsidized its exports. While more Chinese market gains seem inevitable, they are likely to be smaller and a lot harder to come by.


Price Trends Firm Up

Textile quotes, despite continuing global competition, aren’t looking too bad. Basic yarn and fabric averages are running more than 1.5-percent above a year ago. And the same average advance is reported for more highly fabricated products — with an even bigger 2-percent advance from a year earlier in the carpet subgroup. Factors include good demand and less price competition from abroad. On the latter score, Uncle Sam’s import price index for basic textiles is now a solid 4-percent ahead of last year, with much of the increase coming over the past six months. In TW ’s overall 2007 basic mill price projection, an increase approaching 2 percent is now expected — up from the first-of-the-year 1-percent estimate and the nearly flat pattern in 2006.

A similar trend is anticipated for downstream apparel tabs. Best bet here: about a 1.5-percent average increase for 2007 versus the basically flat pattern noted last year. These domestic textile and apparel price boosts aren’t much out of line with the nation’s overall price trend. Uncle Sam’s cost-of living index has risen only 2.7 percent over the past 12 months.

One final thought: The current steady-to-slightly-higher levels, combined with no major cost pressures, help explain why profits continue to hold up fairly well.

September/October 2007


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