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Business & Financial
Robert S. Reichard, Economics Editor

The Numbers Aren't Bad

By Robert S. Reichard, Economics Editor

L atest statistical evidence continues to support Textile World ’s contention that the textile industry is doing tolerably well. A case in point: profits, where new Census Department data — carrying through midyear — show after-tax mill earnings running close to 12 percent above comparable 2005 levels. Margin trends are equally upbeat, with profits per dollar of sales over the same period put at about 3.4 percent — significantly above the 3-percent reading noted during the first six months of 2005. That’s also the highest level for this key indicator of textile health in more than a decade. To be sure, earnings in the downstream apparel sector are down a bit. But here, too, dollar and margin levels remain solidly in the black.

More importantly, all this basically encouraging profit news is likely to continue through the entire year. At least that’s how analysts at economic forecasting firm Global Insight see things. Their latest forecast, for example, calls for a solid 15-percent margin gain this year for mills turning out finished products — rugs, home furnishings, etc. And even in the more competitive basic mill sector — yarns and fabrics, current forecasts suggest a much smaller margin decline than last year, with an even better picture, a basically flat pattern, anticipated here for upcoming 2007.


Demand Is Holding Up, Too
Nor are activity figures all that discouraging. Mill production, for example, has remained pretty much unchanged since last December. In any event, that’s a heck of a lot better than some of the steep declines reported over the past few years. Behind this somewhat brighter picture: a still basically strong economy — more about this below — plus smaller than previously expected textile and apparel import gains.

This somewhat improved mill production picture is also confirmed by better than anticipated manufacturers’ dollar shipments, where — as reported in earlier months — an actual uptick in more highly fabricated textile mill products has been helping to offset some of the continuing erosion in the basic yarn and fabric sectors of the industry. Still other positive signs: manufacturers’ apparel shipments, which also are up of late, plus better inventory management. On the latter score, stock/sales ratios remain quite low, suggesting that new bookings — rather than being billed by inventory drawdowns — are now quickly being translated into new production and shipments.

Strong Economy Will Help
Some further thoughts on the impact of continuing economic growth: To be sure, the housing market has been weakening of late. But there are now plenty of areas that are likely to pick up the slack. For one, considerably lower gasoline prices should leave a bit more money available for clothing or other textile-related products. Household compensation — which at latest report was rising at double the rate of inflation — should also help loosen up consumer purse strings, as well as today’s somewhat smaller share of income going to pay down consumer debt.

Still another economic plus: the double-digit growth in US exports over the past year. Finally, there are signs that capital spending on new plants and equipment — something that accounts for more than twice as much gross domestic product as housing — is beginning to pick up. This is a gain that also has positive ripples, helping to generate a secondary wave of jobs and income for consumers. Given all the above, the current year-to-date modest boosts in apparel and home-furnishing sales are likely to persist — not only through the remainder of the year, but also into early 2007.

Chinese Concerns Persist
But not everything is coming up roses. That’s certainly true when it comes to resolving the still-growing trade imbalance with China. To be sure, the United States’ current textile and apparel imports from that nation are under earlier double-digit levels. Nevertheless, the 4.5-percent jump recorded so far this year can’t be ignored. Nor can the recent declines in the United States’ Western Hemisphere imports be regarded as any sort of positive offset. The reason: Double-digit slippages from Canada, Mexico and the Caribbean mean that these countries will be buying less US-made yarn and fabrics for their operations.

There also are more questions about the Chinese yuan. Clearly, the near 4-percent upward revaluation in that country’s currency over the past year or so hasn’t really helped stem imports. Indeed, almost everybody now agrees that a much larger yuan adjustment is needed. But this seems highly unlikely, given Washington’s approach to view such revaluation as part of a much broader agenda — one that also calls for Beijing to reduce subsidies granted to its domestic industries and allow for a more freely flowing capital market.

September/October 2006