A Few Positive Signs

couple of weeks hardly make a trend. But now, for the first time in several years, the
industry seems to be showing some signs of a bottoming out. Mill shipments, for example, advanced 1
percent over the latest reported month — with shipments of mill products rising by an even bigger

Equally encouraging has been the gradual paring of top-heavy inventories. Specifically,
another small decline in the textile mill stock/sales ratio dropped this key industry barometer to
1.61-months’ supply — modestly under the 1.66 reading of a year ago. And in the mill product area,
this key ratio dropped even more precipitously over this same period — from a 1.77-months’ supply
down to only a 1.52 reading.

To be sure, mill output has held steady rather than rising. But this figure, too, should
begin to inch up as the inventory drawdown is completed, and more of current final demand is met by
new mill production.

But Prices Continue To Disappoint

So far, however, there are few, if any, signs of any meaningful price firming. Indeed, all six
of the textile subgroups monitored monthly in our Textile Barometer table edged lower over the
latest reported month.

And if you zero in on the bellwether greige goods category, tags are down a significant 4.3
percent vis-à-vis a year earlier. Three factors behind this continuing price softness: still
relatively disappointing demand; excess capacity, with mill operating rates in the low 72-percent
range; and continuing strong import competition.

On the latter score, tags on incoming textile items dropped again, according to the latest
Bureau of Labor Statistics (BLS) tabulation, leaving them about 3 percent under levels prevailing
just a year ago. Moreover, given today’s strong U.S. dollar, this key import price advantage isn’t
likely to narrow anytime soon.

Few Problems On The Cost Front

On a somewhat rosier note, raw material prices (costs to the textile industry) could help offset
all this easiness in mill quotes. Man-made fibers, pressed by global overcapacity, are running
close to 5 percent under a year ago.

And while the decline in raw cotton tags has bottomed out, these quotes still remain close to
10 cents per pound under year-ago levels. Labor costs also continue to present few problems. The
hourly mill pay rate, for example, is running only 2.8 percent above last spring. That pretty much
matches the 3-percent-or-so annual efficiency gains that are now the norm.

All this could be why the industry, at least on an overall basis, has managed to get back
into the black. In the final three months of last year — the latest period available, mills —
despite lackluster demand and extremely competitive prices — were able to eke out a small 0.7-cent
profit on each dollar of sales. While hardly earthshaking, it’s a lot better than the red-ink
0.6-cent and 2.6-cent losses prevailing in the previous three months and the fourth quarter

A Firming Economy Could Help, Too

There are also increasing signs that improving economic conditions may also be contributing to
industry health. In any case, overall gross domestic product (GDP) growth over the next few
quarters is expected to average out near 3 percent annually. That compares to the relatively flat
pattern of late last year. Not surprisingly, consumer confidence is up sharply.

Moreover, buyers are putting their money where their mouths are — with overall retail sales
gains running at a 3- to 4-percent clip — enough to suggest some pickup in still-depressed apparel
areas. The continuing strong housing market could provide yet another fillip — sparking further
demand for floor coverings and other household furnishings.

Some New Thoughts On Trade

Another positive sign: last year’s 4-percent decline in the dollar value of textile imports. To
be sure, the drop was driven by lower demand rather than any easing off in competitive pressures.
Yet, it does mark the first decline in well over a decade.

As for this year and beyond, there’s renewed hope that the administration will be more
sympathetic to the industry’s problems. Washington, for example, has given Pakistan only one-third
of the trade concessions it had been seeking.

Equally significantly, the government has promised to look more carefully at textile and
apparel smuggling, step up pressure on other nations to lower trade barriers, resist the World
Trade Organization’s (WTO) efforts to speed up the global phase-out of textile and apparel quotas,
and reassess efforts to promote textile exports. The big question mark: will Washington follow
through on all these promises?

May 2002