M
ills, going into the last quarter of the year, aren’t doing all that badly, at least
relative to overall U.S. business performance. Latest monthly data, for example, show textile mill
output running 2 percent ahead of a year ago — actually a bit better than the near-flat level of
Uncle Sam’s overall industrial production index over the same period.

Look at projections for all of 2002, which factor in earlier declines, and the picture is
much the same, with both textiles and general industrial production expected to show only
fractional dips.

Where do we go from here? Clearly, incoming textile orders still leave a lot to be desired.
But by and large, current trends do suggest that the industry has turned the corner. And while 2003
will hardly be a boom year, mills are in a much better position than a few years back to survive in
today’s hotly competitive climate.

More Evidence Of Better Days Ahead

The above appraisal is based on more than wishful thinking. As one mill executive put it, “While
recent improvement hasn’t been dramatic, demand has clearly bottomed out, with small gains likely
into early 2003.” Equally encouraging, the Institute of Supply Management finds textile output has
been rising for several straight months.

As for specific fabrics, denim continues to move well, despite strong competition. Helping
things along is the trend toward lighter finishes, tinting, crosshatching, slubbing and engineered
stripes. True, khaki business remains slow. But sellers here hope to rev up demand with new
stain-resistant fabrics.

In general, higher-priced fabrics are now hitting the market in increasing volume. This, too,
should help over the longer pull.

Pricing Has Stabilized Too

Somewhat higher quotes on a few more basic fabrics are also beginning to show up. But perhaps
even more significant than any modest increase is the recent change in overall price direction —
from down to up. If there’s any doubt on this score, take a look at Textile World’s mill price
index, which suggests textile price averages have been slowly edging up now for more than half a
year.

Bellwether greige goods have helped contribute to this recovery, with the year-to-year price
lag in this key area now all but gone. On the other hand, it’s still difficult to post hikes on
many finished fabrics. And in denim, tags on basic grades remain at very low levels, despite fairly
good demand levels.

As for other textile areas, prices are beginning to creep up in the man-made fiber sector.
Quotes for polyester, for example, are now as high as 60 cents per pound — well above the low 50s
range of earlier this year. Other areas of man-made strength include lyocell, lightweight modular
rayons and acetate. Most yarns also have begun to move onto higher ground.

A Closer Look At Cotton

Cotton, the key natural fiber, also has edged up from earlier 2002 lows. But here, there’s
little indication of any further meaningful advances over the next few quarters. That’s because
supplies remain more than adequate, reflecting a recent upward revision in the new U.S. crop by one
million bales — up to nearly 18.4 million bales. And forecasts for another fairly large world
cotton crop suggest a continuing global inventory overhang that will keep a lid on any near-term
price rise.

Beyond that, prices could well depend on the extent of future buying by the Chinese. Should
that nation step up its purchases, prices could begin to edge up again — probably as early as
mid-2003.

Some Important Questions Remain

This cautiously optimistic prognosis isn’t without its potential problems. For one, imports
continue to come in at a disturbing clip. Indeed, they’ve been accelerating of late. Year-to-date
gains on a square meters equivalent basis again are running in the double-digit range, compared to
last year’s relatively flat incoming shipment pattern. On the other hand, a somewhat weaker dollar
may help slow the tide — at least over the longer pull.

Another important questionmark: What happens in 2005 when quotas are eliminated? Nearer term,
there are still some nagging questions about the economy and how it will affect textile and apparel
demand.

True, the combination of a housing boom and low interest rates have helped offset a still
very shaky stock market. But these can’t turn the tide alone.

Bottom line: There’s still little evidence of any quick return to pre-recession GDP growth
rates.

October 2002