Investment May Be Leading The Way

When Federal Reserve Chairman Ben Bernanke describes the economic outlook as “unusually uncertain,”
it is fair to say that having confidence in your company and willingness to invest in the future
takes real guts.

There’s not a lot of clarity or certainty about the underlying economy on a macro level, nor
about what the future holds for running a company in the United States, either.

Who would think that page 737 of the new healthcare bill, as Bloomberg Businessweek puts
it,  “requires companies to report to the IRS payments of more than $600 a year to any
vendor”  via form 1099? That could mean filing a 1099 for Staples, Verizon, and just about
every vendor you do business with — and what does that have to do with healthcare? It has also been
reported that the National Small Business Association estimates, on average, the number of 1099
filings per company will rise from 20 to 95 forms.

Running a business is a seriously stressful responsibility in these unusually uncertain
times. Employers and employees alike need to bolster a level of confidence about the future, and it
is unfortunate that this confidence is not being rallied by Washington.

Employers, on the one hand, seem to be waiting for the next curve ball, the next rule change
that affects how their business runs. If they are owner-operators, and possibly Subchapter S
corporations, taxes could impact their ability to invest in their company’s future.

On the other hand, textile manufacturing and manufacturing in general tend to lead the
economy on the way out of a recession, so investment could be entirely appropriate at this time.

The U.S. Department of Commerce Bureau of Economic Analysis recently released the results of
U.S. economic activity through the second quarter of 2010. Although consumer consumption was weaker
than expected, a point that got by many analysts was that  “real nonresidential fixed
investment increased 17.0 percent in the second quarter, compared with an increase of 7.8 percent
in the first. Nonresidential structures increased 5.2 percent, in contrast to a decrease of 17.8
percent. Equipment and software increased 21.9 percent, compared with an increase of 20.4 percent.”

That information could suggest the beginning of a major shift in the future economic
environment.The quarterly data series shows that gross private domestic investment has been
negative from fourth quarter 2006 through fourth quarter 2009.

The period from fourth quarter 2008 through third quarter 2009 saw the largest contraction,
with month-over-month double-digit shrinkage. The first two quarters of 2010 show double-digit
advances, a significant turnaround.

Textile capacity utilization figures, as compiled by the Federal Reserve Board and reported
in this issue of

Textile World
by Economics Editor Robert Reichard, show the industry moving in the right direction, from a
dreadful 57.3 percent one year ago, to 66.9 percent last month and 69.0

percent in the most recent month.

Will a wary consumer, eerie housing market and increasing national bureaucracy beset with
unintended consequences snuff out what could be a textbook turn to recovery? Time will tell.

September/October 2010