Productivity - A Major Plus
By Robert S. Reichard, Economics Editor
But even more importantly than that, these productivity gains have also exceeded the increase in hourly mill pay rates over the same period. The implication is clear: US mills’ unit labor costs of production have actually been trending lower over the past decade. Moreover, all indications seem to suggest this upbeat trend is continuing. Indeed, look at the numbers for production, employment and pay rates over the past 12 months, and it’s quite clear this critical unit labor cost yardstick is still heading lower.
The key factor behind this positive news? Willingness on the part of domestic mills — despite all its well-advertised international trade problems — to continue investing in new, more efficient and flexible production facilities. Again harking back to NCTO calculations, the industry is estimated to have shelled out an impressive $33 billion in productivity-enhancing plants and equipment over the past decade.
Meantime, increases in the other key natural fiber — wool — have been fairly restrained over the past 12 months. The situation in man-made fiber prices isn’t all that bad either. To be sure, the government’s overall man-made fiber price index is running 1 to 2 percent above year-earlier levels, but that’s hardly earth-shaking. Moreover, there’s little indication of any meaningful changes ahead — at least as far as the overall man-made average is concerned. Indeed, given the recent declines in oil quotes — the key indicator of man-made’s feedstock costs — some isolated weakness can’t be entirely ruled out in the months and quarters immediately ahead.
Add in the fact that both basic fabric and mill product prices have remained steady or even edged a bit higher — and it’s clear that earlier fears of another cost-price squeeze just haven’t materialized. As such, it’s not all that inconceivable that late 2006 and 2007 earnings could continue to show further modest improvement.
Behind this encouraging trend are continuing job growth and a trend toward bigger pay hikes - a combination that has pushed real after-tax income up some 3 to 3.5 percent when compared to a year ago. And still another buying assist is coming from recent sharp declines in gasoline tabs - something that is freeing up a lot of additional cash for purchases of apparel and other consumer goods. Finally, it should also be pointed out that there is even some hope that the huge yuan/dollar exchange rate imbalance will improve. Indeed, there has already been a bit of progress on this score, with the latest figures showing the undervalued yuan running close to 5 percent above levels prevailing in 2005, when China first indicated it might be amenable to change. Moreover, the recent US election results could well accelerate this trend because the makeup of the new Congress would seem to suggest increasing pressure for further upward yuan revaluation.