A Not-Too-Bad Early 2007


F
inal January-April textile statistics are providing a bit of cheer to industry
executives. For one, mill production has remained pretty much unchanged from end-of-2006 levels.
And while four months do not necessarily indicate a trend, the new numbers would clearly seem to
suggest an improvement over the last six months of 2006 when overall mill output dropped about 5
percent. Moreover, this newly noted leveling off is confirmed by Uncle Sam’s textile shipment
numbers, which show early 2007 averages running only about 1 percent under last December’s
levels.


Equally encouraging is the fact that virtually all of this new output seems to be going into
consumption rather than inventory. Backing this up, mill inventory/sales ratios have for the most
part remained at relatively low unchanged levels. To be sure, some decline in overall mill activity
still seems inevitable for the year as a whole. But given the relatively encouraging 2007 start,

TW
is becoming increasingly confident that the beginning-of-the-year forecast
(See “Textiles 2007: Another Reasonably Good Year,”
TW, January/February 2007)
will hold up. Recall at that time

TW
called for only a small 1 to 2 percent decline in aggregate mill shipments. And that’s
still our expectation. All the above would also seem to bode well for early 2007 profit figures,
which are just now coming out. But one word of caution: Not all mill segments will fare equally
well. And again, harking back to our earlier predictions, TW feels the more highly fabricated
sectors of the industry will fare better than basic textiles — mainly yarns and fabrics.


A Brightening Economic Picture

Another encouraging sign: Recent fears of a general business slow-down are beginning to fade.
To be sure, early 2007 gross domestic gains haven’t been all that robust — with first quarter
numbers rising at a less than 1.5-percent annual rate. But according to Nariman Behravesh, chief
economist at consulting firm Global Insight, this may be about to change. In any case, by year-end,
he expects the economy to again be growing at a near 3-percent annual rate. Much of the optimism
here stems from the fact that consumers, who account for some 70 percent of all economic activity,
continue to spend. Indeed, even during the recently ended first quarter, consumer outlays rose at a
3.8-percent annual rate — actually a bit faster than the 3.2-percent pace noted for all of last
year. More important, a good portion of this is being funneled into textile’s principal market —
apparel. Thus, retail sales at clothing and accessory stores at last report were running close to
5-percent ahead of comparable 2006 levels.

True, imported merchandise accounts for much of this gain. Nevertheless, this key number does
suggest a basically still-strong demand for textile and apparel products. Another bullish
macro-economic sign: All-industry factory production also looks to be on the rise again. Thus, the
Institute of Supply Management — a grassroots purchasing executive trade group — notes that as of
last report, its index of industrial activity rose to its highest level in nearly a year.



Other Upbeat Signs

Some positive developments can also be expected on the trade front as the United States and
China try to hammer out new compromises, and recent declines in the trade-weighted US dollar make
exports more competitive and imports more expensive. On the latter score, this dollar weakness can
already be seen in US global imports of textile mill products, where year-to-date numbers on a
square meter equivalents basis are no larger than they were over the comparable 2006 period.
Indeed, exclude China, and our imports of these products have actually shown a fractional decline.
Still another encouraging sign of US textile industry viability: Continuing heavy investment in new
plant and equipment.

Indeed, despite continuing mill shutdowns, this strong capital spending has held the drop in
overall US textile mill capacity to only around 2 percent this past year. That’s not all that bad
considering all the recent negative forecasts about domestic mill shrinkage in today’s increasingly
competitive one-world market. Nor was the past year an anomaly in this respect. According to recent
National Council of Textile Organizations estimates, domestic mills have invested upwards of $3
billion a year in new plant and equipment over the past decade. All told, this had enabled the
industry to boost productivity a hefty 51 percent over the past decade. That’s the equivalent of an
impressive 4.25-percent annual rate of advance — putting textiles second among all industrial
sectors in output-per-worker advances.



June 5, 2007
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