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Business & Financial

More Positive Numbers

Robert S. Reichard, Economics Editor

A spate of new and revised government statistics backs up the overall feeling that U.S. textile and apparel companies may be doing a bit better than many believe. New benchmark data show that textile production rose close to 1 percent over the past year — a considerable improvement over 2013’s previously estimated fractional decline. And while the upward production revision in the downstream apparel sector was minimal, the actual advance is quite impressive — 6 percent vis-à-vis the previous year’s output. Equally significant: the newly released numbers reveal the textile and apparel share of the nation’s total industrial production pie has remained basically unchanged for four years now. That’s in sharp contrast to the big declines noted during the previous 10 years. In short, the two industries, contrary to lingering worries, have been keeping pace with today’s general manufacturing recovery.

Moreover, compare the textile share of production to that of the overall non-durable goods sector, and mills have actually fared better. Again, this is a lot different than the sharp textile share declines noted before 2009. More importantly, based on current projections, 2014 should see a continuation of these new trends. For one, the economy as measured by gross domestic product seems headed for a fairly solid 3- to 3.5-percent gain this year. Other encouraging factors include the recent leveling-off in textile and apparel imports, increasing American producer interest in reshoring, and the growing consumer preference for Made in USA products.

Strong Capital Spending
Another indication that the industry climate continues to improve comes from a just-released report on capital investments. Latest numbers here show textile mills shelling out some $1.2 billion a year to modernize and expand their production facilities. That’s significantly above the less than $1 billion spent as recently as the2008-2010 recession years. These latest yearly outlays also are not that much off the pace recorded during the first decade of the century, when the U.S. domestic industry was much larger. Also, as noted in the last issue ofTextile World, the new plant and equipment spending appears to be covering the gamut of mill activity — including fibers, spinning, nonwovens, composites, technical fabrics, floor coverings, and textile chemicals (See “U.S. Textiles: Investments Abound,” Textile World, March/April 2014).

Viewing all this from yet another perspective, this means domestic mills at last report were earmarking 2.2 percent of their revenues for capital improvements. Again, that’s above the previous few years and not much different from the capital spending-to-revenue ratios of five to 10 years ago. In any event, all these new numbers seem to offer pretty strong evidence that textile companies are again bullish about the future. But, even more importantly, they seem considerably more willing to spend some big money to back up this growing optimism.

Other Upbeat Trends
Two noteworthy byproducts of this capital spending should also be pointed out: maintenance of a still-impressive capacity base; and some impressive productivity gains. On the mill capacity front, today’s multi-billion-plus annual investments have pretty much halted the slide in production potential noted over previous years. Indeed, capacity over the past 12 months has slipped by only 2 percent — a lot better than the near-6-percent declines experienced earlier. More importantly, today’s production potential, reflecting all the recent state-of-the-art plant and equipment coming onstream, is a lot more efficient that just a few years ago. Not surprising, the National Council of Textile Organizations estimates that the typical worker now turns out 24-percent more product than a decade ago — the equivalent of a better-than-2-percent annual increase in industry productivity. Moreover, compare current production and employment estimates, and the efficiency advance is close to 3 percent. This is equal to or slightly above hourly pay boosts. Implication: Unit labor costs may actually be trending a bit lower. This is all in marked contrast to what’s been happening overseas, where double-digit pay hikes and sharply higher unit labor costs are now the norm. Upshot: Foreign sourcing is becoming somewhat less attractive — a conclusion that seems to be confirmed by the recent leveling-off in textile and apparel imports.

May/June 2014

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