Textiles - 1991 U.S. Industrial Outlook

Textiles

Slower 1990 activity in the U.S. textile industry (SIC 22) was in sharp contrast to the performance in the preceding three years. Textile industry growth peaked in 1989, when most sectors of the industry enjoyed record or near-record rates of output and sales. Price increases were slow to respond to the strong demand, but by mid-1989 prices increased for most of the industry's products. The production and sales gains of 1988 extended through the first three quarters of 1989. A slowdown occurred in the last quarter of 1989 reflecting the slowing of business activity throughout the U.S. economy. As 1990 opened, several retail establishments were facing bankruptcy, and all were experiencing flat retail sales and depressed textile markets. This market climate continued throughout 1990.

Before reading this chapter, please see "How to Get the Most Out of This Book" on page one. It will clarify questions you may have concerning data, forecasting methodology, the use of constant dollars, the difference between industry and products data, sources and references, and the Standard Industrial Classification system (SIC). For other topics related to the subject of this chapter, see chapter(s) 12 (Chemicals and Allied Industries); 20 (Industrial Machinery); 34 (Apparel), and 40 (Retailing).

Industry shipments by the 4-digit SIC industries aggregated within SIC 22 dropped 4.9 percent in current dollars in 1990 and by 7.3 percent in constant dollars. Lower operating rates, along with higher nonoperating costs, translated into drastic erosion of industry profitability in 1990. Net profits for the textile industry during the first half of 1990 were 76 percent below the first half of 1989, the lowest level since 1975. The most striking element depressing the industry's 1990 performance was a significant increase in nonoperating expenses. Nonoperating expenses amounted to $1,045 million during the first half of 1990, 38 percent above the $760 million incurred in the same period of 1989. These expenses chiefly reflected: (1) considerable write-offs as a result of capital losses incurred from asset sales and (2) greatly increased interest expenses from debt service requirements.

During the first half of 1990, the capacity utilization rate for textile mills was 87 percent, 2 percentage points below the utilization rate for the same six months in 1989. The tightening of credit, weak profit performance, and reduced capacity utilization rates are likely to inhibit spending for new plants and equipment in 1991.

Capital expenditures in the textile industry, which hit a record high in 1989, fell in 1990 to $2.1 billion, 8 percent below the $2.2 billion spent in 1989. Most capital expenditures were dedicated to the replacement of existing capacity with new technology, increasing productivity while reducing labor requirements.

Significant new technologies within the textile sectors include advanced spinning methods; robots that deliver materials and splice broken yarns; water jet and air jet looms that have replaced shuttle looms; and computers that design knit fabric and lay patterns on materials. The entire textile manufacturing process is utilizing sophisticated microprocessor-controlled monitoring to improve product quality. Technologies throughout the various textile sectors are being integrated into more flexible units with fewer overall manufacturing steps.

Employment

Total employment in the textile industry fell 2.4 percent in 1990 to 649,800 workers after declining by less than 1 percent in 1988 and in 1989. The number of production workers declined 3.1 percent in 1990 to 549,900 employees. Production workers' average hourly earnings increased 4.5 percent to $8.30.

The even sharper declines in industry employment of the early 1980s appear to have slowed, however, now that structural adjustments within the industry have occurred. Consolidation activity and the transformation to a more competitive environment have resulted in fewer but larger textile producers that have implemented labor saving techniques in their production processes. While overall employment levels are expected to continue to decline, the rate of decline should remain gradual.

The industry employed 4 percent of all manufacturing workers and 5 percent of all production workers in the United States. The textile industry is a major employer of women and minorities. Textile mills are located in every state with the greatest concentration in the Carolinas and Georgia, which combined account for 60 percent of the industry's employment.

INTERNATIONAL COMPETITIVENESS

The foreign-trade deficit for textile mill products was reduced $1.4 billion in 1990. Import growth declined while exports jumped sharply. The value of imports in 1990 totaled $6.8 billion, down 7 percent from 1989. Export growth was the industry's single most significant market development in 1990. U.S. exports of textile products reached $3.7 billion, up 30 percent from 1989. Overseas sales accounted for 6 percent of the value of industry shipments. The weaker U.S. dollar, a vigorous U.S. Government-sponsored export development program and continued economic growth in most U.S. overseas markets, have enhanced export opportunities for the U.S. textile industry. Canada was the largest foreign market accounting for 26 percent of U.S. exports. Over half of the value of U.S. exports to Canada consisted of cotton and man-made fiber fabrics. Other major U.S. textile export markets include Mexico, the United Kingdom, and Japan. Noteworthy in 1990 among textile product exports was carpeting, which increased 30 percent.

The future of world textile trade will be influenced by the outcome of the Uruguay Round of negotiations in the General Agreement on Tariffs and Trade (GATT) that began in 1986 and is scheduled to conclude at the end of 1990. Negotiations in the area of textiles center around the Punta del Este Declaration which proposed that trading nations consider options that would permit the eventual integration of textiles into GATT on the basis of strengthened GATT rules and disciplines.

SPUN YARNS

Spun yarns of cotton, wool, and man-made fibers are primary products of spinning mills. The traditional spinning process is done on ring spindles. Spun yarns produced for sale represents 35 percent of all yarns produced, while the remaining portion is consumed within the same company or affiliated producing mills. Cotton and manmade fiber staple yarns continued to dominate the yarn industry's output in 1990, constituting 97 percent of domestic shipments. The value of industry (SIC 2281) shipments declined 2 percent in 1990, reflecting the weak demand for knit T-shirts and sweaters and the oversupplied fleece market for active wear.

Prices of yarns advanced in 1990, mainly reflecting higher fiber cost. By third quarter 1990, prices of raw cotton increased 16 percent over a year earlier, while manmade fiber prices advanced at a slower rate of 4 percent. Prices of cotton yarns increased 3 percent and manmade fiber yarns increased 5 percent.

Employment in the yarn spinning industry declined 4 percent in 1990 to 78,200 employees. Spinning has traditionally been labor intensive, accounting for over half of spun yarn manufacturing costs. The industry had reduced labor costs through the installation of more modern equipment.

For example, the open-end process eliminates the need for a roving frame and a step in the winding operation. The open-end spinning production rate is 4-to-5 times faster than the traditional ring-spinning process. Other innovations in the yarn-spinning industry include spinning attachments such as automatic doffing (unloading) machines and automatic devices for splicing broken yarns.

BROADWOVEN AND KNIT FABRICS

U.S. fabric industry activity remained relatively flat in 1990. The value of industry shipments increased by less than 1 percent in current dollars and declined by 1 percent in constant dollars.

Weaving mills, which produce broadwoven fabric, accounted for 74 percent of the fabric industry's shipments. The broadwoven industry (SIC 2211, 2221, 2223) remained flat in 1990 with current dollar shipments at $15.8 billion in 1989 and in 1990. Within the broadwoven sector industry shipments varied, however. Wool fabric industry shipments fell 12 percent in 1990, reflecting the weak demand for men's tailored apparel and outerwear. Industry shipments of manmade fiber fabrics which represented 52 percent of weaving mill shipments, fell 1 percent in 1990. The drop in shipments was due to severe declines in production of print-cloth and other staple fabrics.

Reductions in filament fabric demand coupled with increased imports also adversely affected the manmade fiber fabrics, sector. On the other hand, cotton broadwoven fabric shipments advanced. Industry shipments increased 7 percent in 1990, due primarily to stronger demand for denim and corduroy apparel and improved export opportunities. Manmade fibers and cotton are close substitutes in broadwoven fabric production. The competitiveness and market share of these two products will continue to be highly responsive to changes in the relative costs for the fibers, particularly petroleum base fibers.

Knit fabrics represent the remaining 26 percent of the fabric industry. Industry shipments totaled $5.5 billion in 1990, a 2 percent increase over the $5.4 billion recorded in 1989. Constant dollar shipments declined by less than one percent in 1990. Most of the decrease took place in circular knit fabric mills, where output declined due to the soft apparel market.

FLOOR COVERING MILLS

The U.S. carpet and rug industry (SIC 227) experienced three successive years of stable demand 1987-1989, resulting from healthy levels of new residential and nonresidential building construction, as well as a growing replacement and additions market. Although carpet shipments are essential to virtually all types of construction activity, the greatest product usage is in residential construction, about 55 percent, with the remaining 45 percent used in the nonresidential construction and replacement market.

Reflecting higher unit prices, the value of shipments by the carpet and rug industry totaled $10.9 billion in 1990, a 2.3 percent increase over the 1989 level. However, constant dollar shipments dropped in 1990 as a result of reduction in both residential and nonresidential construction activity and a reduction in consumer spending.

To improve profitability and control costs, most of the major carpet producers over the past several years have purchased independent yarn processing plants and integrated them into their own manufacturing operations. These same carpet mills have also moved into direct sales. In the early 1980s two-thirds of all carpet was sold through carpet distributors. In 1990, less than a quarter is sold through distributors. Carpet producers have established their own regional distribution centers and are selling their products directly to the retail sector.

INTERNATIONAL COMPETITIVENESS

Increased demand in major overseas markets resulted in carpet exports increasing nearly 30 percent in 1990. U.S. carpet producers, which do not normally sell heavily overseas, took advantage of favorable exchange rates to increase their export sales to offset declines in domestic demand.

Canada has remained the leading U.S. export market over the past two years. The largest increase in U.S. exports of carpets in 1990 was to Canada, increasing by more than 3 times the previous year level. Part of the increase is attributed to the U.S.-Canada Free Trade Agreement that became effective on January 1, 1989. The agreement provides an annual decrease of 10 percent in Canada's tariff rate until the tariff no longer exists. Carpet exports jumped from $68 million in 1989 to $200 million in 1990.

Other major markets for U.S. carpet exports are Japan, Saudi Arabia, Mexico, and Singapore. The United States is the largest carpet producing country in the world and ranks fourth in carpet exports. However, these exports represent less than 5 percent of total domestic shipments.

MANMADE FIBERS

The value of shipments by the man-made fiber industry (SIC 2823 and 2824) increased 3 percent in current dollars in 1990, but decreased 2 percent in constant dollars. The downturn in real terms was in response to a slowdown in the general economy, especially the markets for new housing and autos, and a shift in consumer preferences from man-made fibers to natural fibers, especially cotton.

The manmade fiber industry produces cellulosic fibers (SIC 2823) and noncellulosic fibers (SIC 2824). Cellulosic fibers such as rayon and acetate are made from wood-based feedstocks. Noncellulosic fibers, which include such products as nylon, acrylic, polyester, and olefin fiber, are made from petrochemicals.

Cellulosic Fibers

Industry shipments of cellulosic fiber were down in quantity terms in 1990 largely due to a decrease in productive capacity. In late 1989, the nation's largest producer of rayon fiber was unable to comply with environmental regulations and was forced to cease operations. This loss of production coupled with increased consumer demand for rayon and rayon-blended fabrics created a tight supply situation and pushed prices upward during most of 1990.

By the second half of 1990, other firms began increasing capacity to make up for the loss of production. The demand for acetate was also strong in 1990, not only in its traditional market of fabric lining and women's fashion, but also increasingly in new markets such as young men's jackets, shirts, and slacks.

Noncellulosic Fibers

The Middle-East conflict and the subsequent impact on the petroleum market during the last half of 1990 increased the cost of production in the noncellulosic fiber industry. Fiber producers postponed price increases because demand was relatively weak and inventories of raw materials were substantial. However, some firms began to announce price increases in the last quarter of 1990 and more are expected if the higher petroleum prices continue into 1991.

Although industry shipments of noncellulosic fibers were up, constant dollar shipments dropped 2.3 percent in 1990. Production of polyester, nylon, and acrylic were all down, with a slight increase in olefin production the only exception.

Shipments of acrylic fibers have fallen for several years with production continuing to decline in 1990. The decrease is attributed to import competition, and shifts from acrylic/ cotton blends to polyester/cotton blends in fleece wear, and away from acrylic into cotton in hosiery and sweaters.

At midyear 1990, a major producer of acrylic fiber, accounting for 25-35 percent of domestic production, announced that it would phase out its acrylic fiber business There are only three U.S. producers of acrylic fibers remaining.

Nylon filament production was down in 1990 while staple fiber production posted only a slight increase. One of the bright spots in the nylon area is spandex, an elastic fiber which is being used increasingly in sportswear and swimwear. A major producer of spandex increased its capacity in 1989 and has plans to continue increasing capacity through 1992.

Polyester production was down in 1990, but polyester also holds one of the promising areas for future production - microdenier polyester. Microdenier filament products are less than one denier in size and produce fabrics that are both light weight and exceptionally strong. The fabric is being used in casual sportswear, outerwear, and activewear with other uses planned. Microdenier filament products are not new, and both Japan and Europe have been producing similar products. Domestically, two major U.S. polyester producers have recently introduced microdenier filament and several weaving mills have begun to produce fabrics using these products.

Over the past five years production of olefin has increased and continued to grow in 1990. This growth is largely due to increased demand for polypropylene in both apparel and industrial applications. In apparel, polypropylene is used for outerwear and activewear and, because of its ability to withstand sunlight, is being used increasingly in swimwear. Polypropylene is also used for residential and commercial carpeting and automotive interior fabrics.

INTERNATIONAL COMPETITIVENESS

The value of imports of manmade fibers (SICs 2823, 2824) increased 18 percent in 1990, with major increases from Austria, Canada, and France. The majority of the increase in imports occurred in SIC 2823, cellulosic fiber reflecting the tight U.S. supply situation. The value of U.S. exports increased 6 percent in 1990. The major markets for U.S. man-made fibers include Australia, Belgium, Canada, China, and France.

Even with the weak market, worldwide capacity to produce man-made fibers is increasing. By the end of 1991, total world capacity to produce noncellulosic fibers is expected to reach 44 billion pounds, an increase of 8 percent compared to the beginning of 1990. Countries which are significantly increasing capacity include India, Indonesia, South Korea, and Taiwan. Total world productive capacity of cellulosic fiber is expected to reach 8 billion pounds by the end of 1991, an increase of 5 percent over 1990. Countries with significant growth in cellulosic fiber production include Great Britain, Hungary, the U.S.S.R., and Indonesia. - James Bennett, Office of Textiles and Apparel, (202) 377-4058, October 1990.

PHOTO : The weaker U.S. dollar, a vigorous U.S. Government-sponsored export development program, and continued economic growth in most U.S. overseas markets have enhanced export opportunities for the U.S. textile industry.

Additional References

Carpet and Rug Industry, Rodman Publications, P.O. Box 555 Ramsey,

NJ 07446. Telephone: (201) 825-2552. Textile Hi-Lights, Economic Information Division, American Textile

Manufacturers Institute, 1801 K Street, NW, Suite 900, Washington,

D.C. 20006. Telephone: (202) 862-0050. Textile Organon, Fiber Economics Bureau, Inc., 101 Eisenhower Parkway,

Roseland, NJ 07068. Telephone: (201) 228-1107. Textile World, McGraw-Hill Publications Co. 1221 Avenue of the Americas,

New York, NY 10020. Telephone: (404) 252-0626.

COPYRIGHT 1991 U.S. Department of Commerce
COPYRIGHT 2004 Gale Group