Hope The Marketing People Are Right
James L. Lemons, Ph.D., Technical Editor
West Coast ports have finally settled labor disputes, and are now back to the business of flooding our economy with imports, which has pushed the US trade deficit to a record $40.1 billion - an increase of 13.9 percent according to the Commerce Department. The Federal Reserve is reporting US industrial production fell another 0.2 percent in December, making 2002 the second year in a row with declines in industrial output. These statistics underscore the challenges that still lie ahead for the struggling US economy.
Most consumers simply don't think President Bush can convince Congress to pass a stimulus package for the economy. Even the president's attempt to defend his proposal met with some unexpected opposition. It seems that aides had to tape over "made in China" text printed on hundreds of boxes used as backdrop behind the president as he delivered a speech concerning his stimulus plan. Fed Chairman Alan Greenspan may have dealt the president's plan the most striking blow by voicing his opposition, indicating additional tax cuts will lead to huge deficits, which will result in much higher interest rates over the long term.
Believe it or not, there are some positives in the economy for yarn manufacturers. First, retailers are indicating that although their sales have been sluggish, they have been able to clear a lot of inventory out of the pipeline due to deep discounts. Most of the spinners contacted indicated business is beginning to show some positive signs. As one major spinner indicated, “ December was terrible; January was a little better … hope the marketing people are right about next quarter.” Another spinner revealed a growing trend when he said, “Our business is better; however, we are moving all the spindles we can away from commodity products ….[W]e are spinning things right now that we wouldn’t have looked at two years ago.”
... And Negatives
On the negative side, concern over the pending war has pushed oil prices up 38 percent this year. The Energy Department indicated crude oil stocks have fallen to 269.8 million barrels — the lowest level since 1975. All of this has resulted in pushing up polyester prices.
Cotton prices also continue to increase. These raw material price increases are putting an increased strain on already thin margins. As one spinner said, “It may cost us some business, but we have to pass this cost on to our customers.”
However, there is some level of optimism concerning the future of the textile industry if it is attracting the interest of an investment guru like Warren E. Buffett (See “Textile World News,” TW, this issue).
The American Textile Manufacturers Institute (ATMI) recently released its year-end economic report for 2002. The report indicated Asian yarn prices, aided by currency devaluations, dropped by more than 13 percent in 2002. This helps to explain the dramatic increases in Asian imports — led by China, which is doubling its exports to the United States from 2001. Fiber consumption fell approximately 7 percent in 2002 as the US industry lost 1,250,000 ring spindles, 180,000 open-end rotors, and 18,000 air-jet positions during the year.
This same report points to some positives when comparing 2002 to 2001. Sales actually increased by 2 percent, and the spinners that survived 2001 were more profitable in 2002. A lot of the sales growth could be attributed to the growth of exports to the Caribbean. Although overall employment fell by almost 5 percent, the remaining hourly employees fared better in 2002. Hourly wages rose by approximately 3 percent, while the average workweek increased by more than an hour from 2001.
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