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Business & Financial
Robert S. Reichard, Economics Editor

Markets Remain Weak

Robert S. Reichard, Economics Editor

T here’s still no sign of any meaningful near-term recovery as the first quarter draws to a close. To be sure, mill output is no longer falling. But that’s little comfort to an industry that has seen this bellwether barometer of mill health slide more than 20 percent over the past two years. Prices also leave a lot to be desired — with greige goods currently averaging some 4 to 5 percent under levels prevailing just one year ago.

Non-apparel textile products are none too buoyant either. For example, the average carpet quote at last report was running about 2.5 percent under 12-month-earlier levels. On a rosier note, fiber quotes (a major cost element for all mills) have also remained quite weak — with raw cotton going for only a bit more than half of what it was a year ago and man-made fiber averages off about 2 to 3 percent over the same time span.


A Look At Productivity Trends
Mill efficiency is also helping to blunt some of the negative effects of today’s shaky markets. Over the past decade, output per mill worker has been improving at near a 3-percent annual clip. Normally, one would have expected last year’s sharp production decline to have reversed this efficiency trend, as has been the historical pattern. But not so this time — thanks to the use of new, improved machinery and better management strategies.

Specifically, the 13-percent slide in output over the past year has been matched by an equally large drop in employment. Implication: no productivity slippage. Add in the fact that average hourly mill pay is now rising at only a 2- to 3-percent rate — and it suggests little meaningful upward pressure on mill unit labor costs. More important: the long-term productivity prognosis remains quite good, too. New government projections, for example, see textile-mill efficiency rising at a close-to-2-percent rate over the current decade.

Survival Strategies
Mills, meantime, continue to innovate — preparing the way for better days ahead. Coming off the drawing boards are finer-micron wools, better yarns, and more colors and patterns — products all designed to whet consumer appetites. There are also some creative new blends of wool/silk, wool/cotton, and even 3-way types like linen/silk/wool. And, last but not least, there are old familiar fibers and fabrics with unique new looks. These include washable wools, water-resistant luxury wools and soft, stretch cottons.

Equally significant, as far as bolstering industry productivity, these moves have helped put a floor under the market by limiting the drop in mill operating rates.

An Improving Economic Climate Could Help, Too
The brightening business outlook has to be regarded as still another plus. Most economists now see a 1- to 2-percent gross domestic product gain for 2002 — up from the flat to 1-percent forecast of only a few months ago. Other encouraging signs: continuing high home values, which help offset a weak stock market; cheap energy and virtually no inflation; low interest rates; and fiscal help from last year’s tax cuts and higher defense spending.

All the above suggest retail sales will hold up tolerably well — with the National Retail Foundation predicting a 3.7-percent gain for combined 2002 sales of apparel, furniture, household furnishings and sporting goods. That’s significantly above the anemic 2.2-percent advance of this past year.

Latest figures, for example, show only a 6-percent drop in the mill utilization rate over the past year — far less than suggested by the sharp drop in mill production.

The "Strong Dollar" Impact On Imports
Meantime, the headache of increasing import penetration persists. The problem is due to more than just low-cost foreign labor. Equally important, according to a new American Textile Manufacturers Institute (ATMI) analysis, is the strong U.S. dollar, which works to make for sharp price drops in incoming textile and apparel shipments. The trade group finds that since 1998, the dollar has increased an average of 40 percent vis-à-vis the currency values of the top 10 Asian exporting countries.

Not surprisingly, prices of imported textiles from these same countries are off by virtually the same amount — 3 percent to be exact. To redress the balance, ATMI wants Washington to abandon its strong dollar policy. Instead, the group wants the administration to move in concert with other countries to gradually bring the dollar down — adding that such a move would have a more beneficial long-term trade impact than almost any other single step.

March 2002

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