The Economic Scene
Robert S. Reichard, Economics Editor
New post-government shutdown data suggest the fourth quarter isn't going to turn out nearly as
badly as had been feared just a month or two ago. On the gross domestic product (GDP) front, all
signs indicate that October through December business growth will easily top the 1.5- to 2-percent
rate that most analysts had predicted. And while this won't be enough to make a significant dent in
the jobless rate, this kind of advance should beef up consumer confidence and allow for a rather
decent holiday buying season. In any event, history shows that declines stemming from political
turmoil do not usually translate into long-lasting setbacks. Indeed, early Christmas-season buying
indicates that the close-to-4-percent gain predicted by the National Retail Federation may well be
also remains optimistic on economic growth over the following few quarters. To be sure, the
likelihood of a Washington "grand bargain" on the budget still seems quite unattainable. More
likely: Both political parties will probably accept a limited agreement that would bypass the next
round of automatic spending cuts and buy some additional time for solving the more pressing
problems of tax reform and entitlement cuts. Add in other positive signs like the absence of
significant inflationary pressures, a continuing strong Wall Street and an improving housing market
— and the macroeconomic picture looks fairly upbeat. Indeed,
now projects continuing gains, with GDP advances nearing 3 percent increasingly likely by
next summer or fall.
Other Upbeat Signs
This strengthening economy is good news for the U.S. textile and apparel industries. Indeed, there are already indications of better days ahead for these sectors. Latest numbers from the Institute of Supply Management (ISM) have been especially upbeat over the past month or two. When Washington political uncertainties reached their peak, ISM found that textile mills were still reporting solid gains in new bookings, order backlogs, production, and even unemployment. Moreover, the fact that the latest ISM import estimates for the downstream apparel sector slipped a bit over the same period would also seem to be a plus for domestic textile mills. Nor does all the above exhaust ISM's positive findings. Another encouraging sign is the fact that inventories in the two industries have also been edging lower. In fact, stocks for basic mill products are now down to the equivalent of only a 1.24-months' supply — a .06-month drop from year-earlier readings. And a similar slippage in apparel manufacturers' holdings puts the latest reading here at less than a two-months' supply — again, lower than comparable year-earlier figures. Moreover, compare current inventory levels to those prevailing some three years ago, and the declines are even more impressive. Other things being equal, such reductions suggest that new orders are increasingly likely to be speedily translated into new textile and apparel production.
Prices And Demand
Competitive quotes may also be helping keep industry activity on its upward path. On the producer level, clothing tags have been rising at a less-than-1-percent annual rate. And that's true not only of the last year, but also of the past few decades. Moreover, what's true on the manufacturing level is equally true for retailers, where apparel prices over the past year have also shown only fractional annual advances — with even some declines noted recently on some menswear products like suits, sport coats, pants and shorts. Even where prices are up, the increases are generally smaller than those posted in most other consumer products. Put another way: Buying a new wardrobe or even replenishing an older one remains a pretty good bargain. Still-potent foreign competition, of course, remains a major factor behind this price restraint. But equally important could be the fact that U.S. clothing manufacturers' production costs are no longer rising, and in some cases may have even slipped a bit. That's true not only of fibers but also of labor — where, as pointed out in earlier columns, unit labor costs may actually be edging lower. Given all the above positives, it's not surprising that both producer and retail clothing sales have been holding up quite well. Over the past year, totals are up 2 percent and 3 to 4 percent, respectively. More details on where they may be heading in TW 's January/February issue's "Textiles 2014" forecast.
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