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Business & Financial
Robert S. Reichard, Economics Editor

A Few Encouraging Signs

Robert S. Reichard, Economics Editor

T he first quarter hasn’t turned out to be all that bad. Indeed, a look at some preliminary numbers suggests activity is finally beginning to flatten out after the sharp declines of recent years. That’s certainly the picture indicated by the latest Institute for Supply Management report, which measures changes at the grass-roots purchasing level. New orders and production actually are reported rising at both the textile and apparel level. And in the apparel sector, there has even been some increase in order backlogs.

Similar trends are noted as well by Uncle Sam’s statisticians, who also track industry activity. At latest report, basic mill shipments actually were running better than 2.5 percent above depressed year-ago levels. And sales of mill products were leading year-ago levels by an even more impressive amount. Inventories, too, seem to be in better shape, with stock/sales ratios running under year-earlier levels for both basic mills and textile product manufacturers.

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But Don't Expect Miracles

The bottoming out is expected to continue, but it won’t be enough to reverse the long-term negative trend in basic mill production. A new 10-year projection by the Bureau of Labor Statistics sees basic mill activity declining at an annual 2.2-percent rate over the 10-year period ending 2012. True, this leaves a lot to be desired, but it’s much better than the near-7-percent average annual decline of the past three years.

Also on a positive note: Output of textile mill products is expected to show 1.3-percent gains over the next decade. In short, all signs still point to a continuing viable industry.

On the other hand, the prognosis for the downstream apparel industry over the next decade remains dismal — with average annual production slippage put at around 7.6 percent a year, as imports continue to account for an ever-increasing share of domestic consumption.

Long-Term Employment Trends

The outlook for industry jobs — textiles as well as apparel — also isn’t that rosy. Blame it on still-increasing productivity, as well as the ever-advancing import tide. Some specific annual job declines seen for the next 10 years: overall basic textile mills — 6.1 percent; fiber, yarn and thread mills — 5.3 percent; fabric mills — 5.9 percent; finishing and coating mills — 6.9 percent; and textile product mills — 0.8 percent. The latter, which will make up half of the industry’s dollar volume by 2012, is helping to keep the overall industry drop in jobs to only around 3 percent a year. 

Productivity Impact

The role of productivity gains in these declines can be estimated by comparing the above employment and production estimates. The resulting efficiency gain estimates generally are quite impressive: primary textile mills — 3.9 percent; fiber, yarn and thread mills — 2.8 percent; fabric mills — 5.5 percent; finishing and coating mills — 0.9 percent; textile product mills — 2.1 percent; and apparel manufacturing — 3.4 percent.

Implication: Domestic mills will continue to do an impressive job in cutting costs as they step up efforts to remain competitive in today’s increasingly dog-eat-dog markets. 

More On The Yuan

Elsewhere, hope of any major upward revaluation of the Chinese currency is fading. Even Alan Greenspan isn’t all that encouraging about such a move, noting that any big Beijing currency change could weaken the Chinese banking system and in the process threaten the world economy. Also likely to forestall any Beijing move is the recent emergence of an overall Chinese trade deficit.

All the above is not to say the Chinese won’t nudge the yuan upwards. Odds are they will — but only by about 5 percent or so, with perhaps another 5-percent upward shift possibly by early next year.

The feeling is the Chinese have to do something to quell their critics abroad — but not enough to jeopardize growth prospects at home.

In any case, the upward revaluation won’t be nearly enough to make for any significant decline in the US textile and apparel deficit with China. To do that, experts feel at least a 20- to 25-percent revaluation would be needed — and that’s just not in the cards. If the Chinese trade tide is to be slowed, it won’t be via currency shifts, but rather through the introduction of specific US import curbs.

April 2004

 


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