Between 1956 and 1957 personal disposable income increased by $10, or 5 percent of the 1956 total. At the same time, consumer expenditures for apparel rose by $1, or 1 percent of the 1956 total. In the light of these changes, the income elasticity of apparel may be computed as follows: E-percent change in CEA=+1=+0.20 percent change in PDI +5 The income elasticity of apparel was therefore +0.20. This means that for every 1 percent increase in personal disposable income, consumer expenditures for apparel increased by only 0.20 percent. As personal disposable income increased, expenditures for apparel also increased but at a relatively slower rate. When the measure of elasticity is less than 1, as in the case just cited, we say that the demand for the commodity is relatively inelastic with respect to changes in disposable income. When the measure of elasticity is greater than 1, we say that the demand for the commodity is relatively elastic with respect to income. This was known to be the case in automobiles in the past, where a 1 percent increase in disposable income was associated with a 3 percent increase in the sales of autos. Under these circumstances, the measure of income elasticity was +3. When the measure of elasticity is exactly 1, we say that the demand for the commodity is unit elastic with respect to changes in income. That is, 1 percent increase in disposable income will be accompanied by a 1 percent increase in the sales of the given commodity. One more aspect of income elasticity should be made clear before applying this concept to expenditures for apparel. In some situations, it is possible for personal disposable income to rise and expenditures on a particular commodity to fall over the same period. Thus, personal disposable income may rise by 10 percent and the sales of cheap cuts of meat fall by 2 percent as people shift to more palatable food. Whenever changes in personal disposable income and the sales of a particular commodity move in opposite directions, as in this illustration, we say that the commodity is negatively elastic with respect to changes in income, i. e., the sign of the measure of elasticity, E, will be minus, or negative. With this technical exposition in mind, it is possible to examine the relationship between changes in personal disposable income and changes in consumer expenditures for apparel in the postwar period 1947-56. Actually, all three methods discussed above have been utilized here. First, time series have been constructed for personal disposable income and consumer expenditures for apparel for the period 1947-56, inclusive. Second, the ratio of consumer expenditures for apparel to personal disposable income has been computed for each year. And third, measures of the income elasticity of expenditures for apparel have been calculated for nine pairs of successive years. These data are presented in the following table: Consumer expenditures for apparel1 and personal disposable income, 1947-56 [In millions of dollars] This table affords several insights into the relationship between changes in personal disposable income and changes in consumer expenditures for apparel: (1) Generally, consumer expenditures for apparel have not kept pace with the rising level of personal disposable income. While personal disposable income rose from $169 billion in 1947 to $287 billion in 1956-a 69 percent increase-consumer expenditures for apparel rose from $15.6 billion in 1947 to $17.8 billion in 1956, or an increase of only 14 percent. Moreover, much of this increase in apparel expenditures occurred in 1956, after 9 years of negligible change. Between 1948 and 1955, for example, expenditures for apparel fluctuated within a relatively narrow range and never exceeded $17 billion. At the same time, personal disposable income was moving steadily upward with only slight pauses in 1949 and 1954. (2) Consequently, the share of personal disposable income spent on apparel fell from 9.24 percent to 6.21 percent without any reversals of this downward trend in the entire 10-year period. This economic phenomenon has been noted with respect to commodities other than apparel in the past and is often referred to as Engels' law. That is, Engels' law states that as the level of income rises people will spend a smaller proportion of their income on necessities. Although the operation of this statistical "law" has generally been limited to foodstuffs in earlier analyses, it apparently is applicable to expenditures for apparel in the post-World War II period. As total and per capita income has increased, consumers have allocated this additional income for commodities like houses, automobiles, television sets, etc., and have substantially maintained their former absolute levels of expenditures for clothing. Indeed, per capita expenditures for apparel have no doubt decreased significantly since 1947. (3) These general observations concerning the relationship between changes in personal disposable income and consumer apparel expenditures are substantiated by the more precise measurement of the income elasticity of the demand for apparel. It is clear that the demand for apparel is relatively inelastic with respect to changes of income. In no pair of successive years was the positive measure of income elasticity greater than 1. This means, of course, that increases in expenditures for apparel were always proportionately less than the increase in personal disposable income during the same time period. Of equal significance is the fact that on four occasions the income elasticity of the demands for apparel was negative. That is, while personal disposable income rose, expenditures for apparel actually fell. A glance at the table will reveal that this phenomenon occurred during two recession periods, 1948-50 and 1952-54. The magnitude of the negative elasticity measure in 1948-49 22.59-is particularly striking. The implication of these developments is of more than academic interest. Even when personal disposable income is increasing, a slowing down of the rate of increase apparently will cause consumers to curtail or postpone expenditures for apparel. Obviously, this makes apparel producers-and hence the textile industry-extremely sensitive to downward fluctuations in the business cycle. Not only does apparel fail to gain proportionately from a rising level of national income, it also suffers disproportionately when the rate of increase in income is diminished. It would be difficult for the textile industry to avoid the repercussions. To the considerable extent that the textile industry is affected by the demand for apparel, textile producers can scarcely depend upon anticipated increases in personal income to solve the problems which confront them today. In some ways, continued economic growth will necessitate further adjustments by the industry. Mr. SULLIVAN. In view of that fact that you have representatives of the mills and manufacturers and public and labor here, I think it is more important to hear them than to go through statistical matters. That is all I have to say. Senator PASTORE. Thank you very much, Mr. Sullivan. So there will be no misunderstanding of Mr. Sullivan's brief testimony here, he has testified at length, and it is contained in the record of the hearings. Mr. Harold J. Walter. Everyone here has been welcoming everybody else. We want to welcome you to the State of Rhode Island. STATEMENT OF HAROLD J. WALTER, PRESIDENT, BACHMANN UXBRIDGE WORSTED CO. Mr. WALTER. Having been closely associated with Rhode Island, I feel like a part citizen of Rhode Island, thank you, Senator. I am Harold J. Walter, president of Bachmann Uxbridge Worsted Co., Uxbridge, Mass., a division of Amerace Corp., of which I am a vice president. I have been with the company 34 years, virtually all my working life. In addition, I have always taken an active interest in the overall problem of the wool textile industry and served in the 1955-56 year as president of the National Association of Wool Manufacturers, of which I am now a director. Bachmann Uxbridge and its predecessors date back to 1898. It is one of the largest producers of worsteds and woolens. We operate a total of seven plants in Massachusetts, Connecticut, Georgia, and Alabama, employing about 2,300 people. Our plants are equipped with modern machinery. We have been one of the most active textile companies in the matter of research and our studies have resulted in several important developments in machinery and processing. The company produces worsted and woolen apparel fabrics for both men's and women's wear though the most important part of our business is in the men's wear field. Our goods are designed specifically for the volume market, going into popular price garments. Here then we have worsted and woolen manufacturing company with 60 years of experience, a company with modern and efficient machinery, a company that has spent considerable time and money on research, a company that can and does process both old and new fibers as demand warrants. Yet in spite of these attributes our profit record has not been good whether figured as a percentage of sales, on capital investment, or in comparison with many other industries. Let me say right here that we naturally are subject to the same problems and stresses that face all business. Further, there are great changes within the textile industry as respects both fibers and manufacturing techniques. Then there is competition with nontextile products. We find consumers spending less than in the past for clothing and more for other items. I see these problems as the kind that we ourselves must lick by putting out better products and selling them better than the next fellow whether the competition is in or outside of the textile field. What, then, is the difficulty in the wool textile industry? Gentlemen, you don't have to look far for the answer. The difficulty lies with the trade and tariff policy the United States has pursued since 1934 under the trade agreements program which has just been extended for another 4 years. The overall picture of the industrythe heavy contraction, lowered tariffs, rising imports-was presented to you in July by the National Association of Wool Manufacturers in a statement I am glad to endorse. With this overall picture in mind let me outline for you the effect of our sharply lowered tariffs on the Bachmann Uxbridge Worsted Co. As I have said, we produce for the volume market. According to our chief foreign competitors their exports to the United States consist only of highly styled quality fabrics which aren't made even by the few fine goods mills still operating in this country. In other words, they say Bachmann Uxbridge as a volume producer, is totally unaffected by imports. Gentlemen, I wish that were true, but it is not. Since 1953 the percentage of imports used by the popular price clothing manufacturers-the market we serve has grown from a dribble to a most appreciable amount. The accompanying chart, exhibit A, tells the story. (Exhibit A referred to is as follows:) EXHIBIT A.-Percentage of worsted piece goods used by firms below that are imported, by year NOTE.-Percentage of imports of woolens: Manufacturers B: As above (percent of topcoating): 1956, 33 percent; 1957, 65 percent. Manufacturers G: In addition to worsteds as shown above, buy 100 percent of wool suitings and 35 percent of sportcoatings from abroad. Topcoats are one-third of total business volume of this manufacturer. Mr. WALTER. It is based on purchases of imported cloth by eight representative and important American clothing manufacturers. All eight are classified as volume manufacturers in the low to mediumprice field (suits retailing from $45 to $65). The combined sales volume of these eight firms is about $100 million annually. What do the figures in the chart mean? They mean that Bachmann Uxbridge now competes in its major markets for only that business which remains after low-wage imports have been subtracted. When this deduction for imports runs from 10 to 33 percent or more it is all too clear that our market has been drastically cut by unfair foreign competition. I emphasize as strongly as I can that this portion of our business is gone solely because of imports. It is not related to competition from goods made of synthetic fibers. It is a replacement of our woolen and worsted production by foreign mills paying wages many times lower than our own. Before 1953, the competition we had from foreign mills was mainly in staple fabrics. Today, gentlemen, almost every type of woolen and worsted fabrication that we can make is in direct competition with imports. The chart was made up several months ago but the situation has not improved, as I now will explain. There is, of course, the tariff-rate quota on imported wool cloth, as provided in the Geneva reservation, a part of the General Agreement on Tariffs and Trade. It has been somewhat helpful, tending to slow the upward surge of imports to some degree, except those from Japan. The howls of the foreign mills and import interests here would have one believe that this was a severely restrictive device. This is not so and the figures prove it. Rather, imports in 1957 were close to the record volume of about 35 million square yards reached in 1956. Indications are that 1958 imports, in spite of unsatisfactory conditions here, will be at the 1957 near record level of 32,300,000 square yards. Let me interject here that American production of woven wool fabrics in the first half of 1958 dropped 16 percent from the like 1957 period. What of imports while we suffered a 16-percent decline? Here are the details: The Geneva reservation trigger point this year was 14,200,000 pounds (about 28,400,000 square yards). This figure is 5 percent of average annual American wool cloth production in 1957, 1956, and 1955. The 14,200,000 pounds, entered at 25 percent ad valorem, were imported in the first 6 months. As provided by the reservation, the ad valorem duty then increased to 45 percent except for narrow handwoven fabrics and certain religious goods which advanced only to 30 percent. These higher rates remain in effect until the end of this year, then drop back to 25 percent. The first half cloth imports were 25 percent higher than in the same period of 1957. A rough computation indicates the ratio of imports to domestic production of cloth in the first half runs in the neighborhood of 14 percent, against a ratio of about 912 percent in the first half of 1957. Compare these increases, if you will, against the 16 percent decline in American output. Moreover, past experience indicates that the higher duties under the tariff-rate quota do not block imports. In 1957, imports totaled some 16 million pounds, of which about 2 million pounds entered at the 45 percent ad valorem rate. One can only guess that a similar proportion of imports will come in at the higher duty levels this year. It is clear, I believe, that the reservation is not unduly restrictive to say the least. As I have said, the reservation appears to have slowed imports to some degree, except those from Japan. Now, we learn from Daily News Record that Japan is planning to impose her own quota on shipments of wool cloth to the American market. Latest reports, however, indicate the Japanese quota proposal is a liberal one, setting a maximum of 8 million square yards for the year beginning October 1, 1958. This compares with American imports of 7,883,000 square yards from Japan in calendar 1957. It also is a liberal quota when compared with the 219,000 square yards imported from Japan in 1953. On the credit side, it must be said that the Japanese quota, however, liberal, is voluntary and at least may prevent further damaging increases in her shipments to the United States. Before leaving the Geneva reservation I want to stress a number of points made by the national association in its statement to you last July. One is that the reservation should be applied to the full extent of its terms. Categories of fabrics, with the duty rising when the trigger point in each category was reached, would serve to prevent import concentration in particular fabric classes. Our State Department has claimed that the reservation and secret memorandums written at the time the reservation was negotiated with Britain in 1947 rule out categories. Ironically, however, we find the 1958 application of the reservation did set up three categories. These are: (1) Narrow hand-woven goods; (2) certain religious fabrics, both |