Economist Naroff bullish on textiles

PALM BEACH, FL — With a tax rebate on the way, personal income still rising, the housing market still strong, and interest rates coming down, the prospects are sharply improving for a turnaround in retail sales, and the home fashions business as well, moving into the third and fourth quarters and into 2002.

"Believe it or not, I'm actually an optimist about your business," economist Joel Naroff told suppliers and retailers at HTT's Context industry conference here.

A former First Union economist and now principal of Naroff Economic Advisors, he ticked off why he's bullish.

"In spite of the slowdown in employment growth, personal income is still growing at an annual rate of 5 percent. The income is still there. That tells you the potential growth in retail sales," said Naroff.

"The housing market is still strong. People are still buying houses. And they're still buying cars. Consumers are a little bit concerned, but they're not depressed. They're not reacting as badly as they have in the past. They're still buying, but they're buying bigger-ticket items. But as they buy houses, they're not buying furniture and draperies. That's not good news for you right now. But that tells me there's a lot of pent-up demand that's waiting to be unleashed," he added.

Surveying the broad economy, Naroff said, "The stock market has stabilized and got back three-fourths of what it lost. The Fed has been incredibly aggressive, and interest rates are down 2.5 percent. That actually affects consumers more than business because of home equity loans, which are variable rate, and credit cards, which are tied to the prime rate. That means the debt burden has come down dramatically, and that's just beginning to kick in now.

"And now it's Washington to the rescue and the rebates are coming. About $40 billion will fly into the hands of consumers. And whatever they say about saving it or paying down bills, you know they're going to spend it. That's the furniture and the draperies, the sheets and the towels, for all those homes they've been buying. They've had the pent-up demand, and now they've got the cash," said Naroff.

"By the fourth quarter, we can have economic growth back to 4 percent to 5 percent between the rate cuts and the rebates. So I see strong growth in the fourth quarter and through the first half of next year. Very, very strong growth. It will be sluggish in June and July, maybe into August, but by the time we get into fall, the economy will really be chugging. And next year is shaping up to be a real barn-burner."

Naroff added, "So with rebounding job and income growth, coupled with pent-up demand from robust home sales, all bodes well for the home textiles industry."