May 9, 2008

Oil Hits New Record as Labor Costs Rise, Credit Tightens
Oil and other commodity prices continued their upward spiral this week as federal agencies released fresh data showing rising labor costs and tightening commercial credit adding to cost pressure on U.S. industries. Crude oil for June delivery settled at a new record high of $123.53 a barrel on the New York Mercantile Exchange (NYMEX) on Wednesday after a new Labor Department report found U.S. worker productivity accelerated in the first quarter, potentially signaling stronger economic growth but also increased energy demand. Crude oil may reach $125 a barrel in the coming days because of concern over supply shortages ahead of the peak U.S. summer driving season. Oil prices have doubled in the last year and may rise further if economic conditions improve in the United States – the world's biggest energy consumer.

Data out this week from two federal agencies showed rising labor costs and tightening credit adding to pressures from rising commodity prices. The Labor Department’s Bureau of Labor Statistics released 2008 first quarter productivity data on Wednesday, which found worker productivity – a measure of labor efficiency – rose at a 2.2 percent annual rate after a 1.8 percent gain in the prior quarter. However, the report also showed companies trimmed staff hours by the most in five years in the first quarter this year as they tried to cope with the housing-led economic downturn. Labor costs increased at a 2.2 percent pace, down from a 2.8 percent increase in the last three months of 2007.

The number of banks making it tougher for companies and consumers to borrow has reached an historic high, according to the Federal Reserve’s Senior Loan Officers’ Survey, released Monday. The report underscored the Fed’s concern that $318 billion of credit losses and write-downs among financial firms is causing a credit crunch. About 55 percent of banks polled reported imposing tougher standards on commercial and industrial business loans to large and middle-market firms – up from about 30 percent in the previous survey released in January.

FUTURES PRICES FOR SELECT HOSIERY INPUTS
(Thursday, May 1 - Wednesday, May 7, 2008)

Customs Releases Textiles and Apparel Enforcement Statistics
On May 1, the U.S. Bureau of Customs and Border Protection (CBP) released its textile and apparel enforcement statistics for the first and second quarters of fiscal year 2008 (October 2007 – March 2008). As reported in the April 11 edition of Footnotes, CBP recently designated textiles and apparel a Priority Trade Issue for the Bureau through the remainder of this year, and the latest statistics clearly underscore the need for a more assertive approach to enforcement in the sector.

In the first half of fiscal year 2008, for example, CBP’s quota-related seizures increased from 88 (worth $13.8 million) in the first quarter to 132 (worth $20.5 million) in the second quarter, intellectual property rights-related seizures increased from 1,261 to 1,393, and the Bureau assessed commercial fraud penalties valued at $2.6 million in the second quarter – up from $165,460 in the first quarter. To investigate illegal transshipment, CBP visited 42 factories in two countries the Dominican Republic and Thailand in the first quarter and 266 factories in Hong Kong, Indonesia, Macau, Malawi, and Swaziland in the second quarter. The Dominican Republic, Thailand, Hong Kong, and Indonesia are all major legwear producers. The percentage of factories where discrepancies were found was 59 percent and 67 percent, respectively. CBP plans to continue stepped up enforcement in these areas through the remainder of the year.

Senate Appoints Conferees for Product Safety Bill
The Senate has appointed conferees to work out differences between separate bills (H.R.4040 and S.2663) passed by each chamber that would strengthen product safety protections and reform the Consumer Product Safety Commission. As reported in the March 7 issue of Footnotes, there are critical differences between the House version (passed in December) and its Senate companion (passed in March) that could have important implications for manufacturers of legwear and other products. U.S. business groups have expressed particular concern about provisions of the Senate bill that would increase maximum civil penalties for product safety violations to $20 million (twice that included in the House-passed measure), authorize state attorneys general to enforce laws administered by the CPSC (possibly resulting in various interpretations of product safety laws across multiple jurisdictions), and extend whistleblower protection for employees of manufacturers, private labelers, distributors, and retailers.

The separate lists of House and Senate conferees include Members who support and oppose provisions of greatest concern to the U.S. business community, and by themselves provide few clues to the shape of the final bill. Industry sources expect difficult negotiations when conferees meet, as the Senate bill’s sponsor, Senator Mark Pryor (D-AR), and one of its most outspoken critics, Senator Ted Stevens (R-AK), are both conferees. It is unclear how long the conferees will take to complete their work or when a final measure may be passed. With product safety improvements a top priority for House and Senate leaders and an important achievement to tout in upcoming congressional races, Capitol Hill staff have been expecting final passage by the Memorial Day recess. However, sources now report passage of supplemental defense funding and the Farm Bill are both higher priorities for action by the end of the month and a final product safety bill may not move until the summer.

Federal Agencies Announce Regulatory Agendas
Federal agencies published their semiannual regulatory agendas on Monday, which include an inventory of regulations each expects to develop during the next 12 months. While most of the regulatory actions coming forward are in the agriculture sector, a few are relevant to manufacturers and importers of legwear and other textile and apparel products. In particular, the U.S. Bureau of Customs and Border Protection (CBP) agenda reports the agency is in the final stage of developing a new rule regarding data that must be filed on inbound shipments by importers and carriers. Commonly referred to as the “10+2 rule,” it addresses ten data elements required of importers (or their agents) and two from carriers. Based on a January 2 notice of proposed rulemaking issued by CBP, the 10 + 2 Rule could significantly change existing information necessary for all inbound shipments by mandating that data must be filed with the Bureau twenty-four hours prior to loading (as opposed to the current “prior notice” requirement before shipping goods) and by requiring importers to provide a further detailed description of goods at the product level (or “line” level). This includes the identification of all manufacturers, tariff numbers, and countries of origin.

Commerce Will Not Initiate Vietnam Anti-Dumping Investigation Following Second Review of Apparel Import Data
On May 6, the Commerce Department announced it would not self-initiate an antidumping investigation of apparel from Vietnam following its second six month review of imports from that country under a special monitoring program put in place in January 2007. Dumping occurs when a foreign producer sells a product into the United States at a price that is less than fair value, which is often the producer’s sales price in the country of origin or its cost of production. The monitoring program was launched at the request of textile state Senators Elizabeth Dole (R-NC) and Lindsay Graham (R-SC) as the price for their approval of legislation clearing the way for Vietnam’s entry into the World Trade Organization.

Commerce officials said they found insufficient evidence to self-initiate an investigation, but will continue to monitor apparel imports from Vietnam ahead of the next six-month review in September 2008 to ensure apparel is not dumped into the U.S. market. Assistant Secretary for Import Administration David Spooner stated: “Our investigation reveals that prices of Vietnamese apparel are in line with, and in most cases even exceed, other major suppliers, including Central America.” The monitoring program will conclude at the end of the current Administration (January 2009). Legwear is not a particular focus of the program, and Vietnam is a relatively small – but growing – source of U.S. hosiery imports. From February 2007 to February 2008, cotton hosiery imports from Vietnam grew by 2002 percent. However these imports only comprise 0.10 percent of the total U.S. hosiery import market.