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Business & Financial

Pessimism Is Unwarranted

Robert S. Reichard, Economics Editor

Take talk that the economy will continue to slow down with a couple of grains of salt. To be sure, business growth so far this year has been clocked in at a disappointing below-2-percent annual rate — anemic enough to prompt some new worries as well as put a damper on demand for apparel and other consumer goods. But there's precious little evidence to indicate that this sluggish pattern will persist — a scenario that today's purveyors of gloom and doom continue to suggest as they tout such negative developments as a less buoyant stock market, relatively slow job growth, rising interest rates, and a still-growing federal deficit. To debunk this kind of thinking, consider the following:

There's virtually no indication that Wall Street will face a significant correction. The stock-price-to-earnings ratio has been running at near 15 — well under the 20 readings prevailing during the previous market peaks. Today's employment totals, despite low gross domestic product (GDP) growth, continue to rise. As such, many economists now see the industry jobless rate falling to below 7 percent by early next year. The Federal Reserve Bank has made it amply clear that any departure from its easy money policy will be both modest and gradual. Talk of a soaring federal deficit flies in the face of fact. Indeed, it is now actually falling from a peak of nearly 8 percent of GDP in 2009 to a projected 4 percent by year-end.

Add in other existing pluses — including a buoyant housing market, little or no inflation, a shrinking consumer debt load and high consumer optimism — and GDP growth is likely to accelerate a bit — reaching or even topping 3 percent by sometime next year.


An Improving Trade Picture
Also encouraging — at least as far as the U.S. textile and apparel industries are concerned — is a recent leveling off in import totals. The latest available numbers — for June — show incoming shipments sporting a fractional decline. To be sure, one single month doesn't make a trend. But it is an indication that things may be changing. Moreover, look at the entire first six months of 2013, and these import numbers again do not look that bad — with the textile/apparel total running only about 3 percent above comparable 2012 levels. More significantly, this is pretty much in line with the increase in domestic shipments over the same period. Implication: The domestic share of the market is no longer shrinking.

Meantime, on the export side of the textile/apparel equation, the latest numbers are equally encouraging, with outgoing shipments — despite sagging economic activity in many U.S. customer countries — continuing to post small increases. Bottom line: Combine these latest import and export trends, and the U.S. textile/apparel trade deficit — which stopped climbing in 2011 — could remain relatively unchanged for the second straight year. If nothing else, this situation represents a refreshing shift away from the steady tattoo of trade deficit increases experienced during the past decade.


The Reshoring Impact
Also contributing to the improving trade outlook is the increasing interest in reshoring — the return of production to U.S. shores. True, the trend hasn't been nearly as noticeable in textiles and apparel as it has in other manufacturing areas, primarily because these two labor-intensive industries benefit from the lower pay rates still prevailing abroad. Nevertheless, there's increasing evidence that things are changing. Walmart is already on record to bring back some production. Ditto, other big outfits like Brooks Brothers and Saks. All this, of course, doesn't mean the United States will ever come close to recapturing the 800,000 jobs lost by its clothing makers. But reshoring seems certain to intensify as foreign suppliers are increasingly being hit by double-digit pay hikes. Also helping U.S. firms recoup are sharply lower energy costs stemming from oil and gas fracking breakthroughs, and the fact that consumers seem willing to pay a bit more for Made-in-USA labels. Other, less publicized reasons for shifting back to the U.S. would include shorter lead times, lower inventory requirements, better quality, less red tape and other hassles, more product innovation, and the avoidance of disruptions due to overseas political instability. As one trade analyst puts it: If you don't consider all these additional factors, you could be underestimating total supply chain costs by as much as 20 percent.

September/October 2013

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