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Business & Financial

Another Negative Quarter

Robert S. Reichard, Economics Editor

T he year is ending on a rather dismal note. To be sure, consumers are still buying apparel and other holiday gifts. But, by and large, the number of purchases are fewer and generally cost considerably less than previously anticipated. In any event, it’s shaping up as the weakest Christmas season in decades. The result: more downward revisions in our November/December big-picture business forecast — from the very modest overall retail gain predicted a month or two ago to perhaps a sizable decline. Some recently released surveys would seem to confirm this basically downbeat outlook. A few weeks ago, for example, the Hay Group, a big consulting firm, queried the 40 largest retailers, and the results were pretty sobering: Three out of five said they expected November/December sales to be no better than flat, with many of the remaining respondents anticipating declines as high as 15 percent. It’s all in sharp contrast to a similar September survey, when the majority of retailers were talking in terms of a 5- to 10-percent jump in holiday sales. The story is much the same when viewed from the consumer perspective. The NPD Group, for example, finds 25 percent of queried families planning to spend less this Christmas — more than double the number feeling they’d be spending more. And as might be expected, declines cover all goods, including many domestic textile and apparel products. As such, mill shipments — already down 8 percent over the first nine months — could be off by as much as 10 percent by year end. That would be the industry’s worst performance in nearly a decade.

A Look At Early 2009
Nor is it likely that the next few quarters will see any appreciable textile turnaround. True, all the fiscal and financial aid being funneled into the economy by Washington should have some positive effect. But it will all take time, especially with consumer confidence still near an all-time low. While making any pinpoint predictions under these conditions is risky, Textile World editors feel that general business activity will continue to decline, though hopefully at a less precipitous pace. And again, this will be having a negative effect on textile and apparel. TW ’s best bet: another 3- to 5-percent slippage in textile production and shipments through next June. After that, if all goes well, a more significant industry bottoming-out could be in the cards. But to achieve this, US officials will also have to keep a sharp eye on imports — especially from China, where fears of a similar-to-US downturn has halted an further upward revaluation of the nation’s currency — the yuan — and resulted in increased Beijing rebates on taxes charged to their textile, apparel and other exporters. More importantly, Washington’s top priority has to be put on effecting extensions on still-existing Chinese export curbs — caps that are targeted to expire at the end of the current year. One hopeful sign: The incoming Obama administration has been hinting it might be somewhat more willing to protect US industries. So has the new Congress, many members of which were selected on the promise to further level the still badly distorted international trade playing field.

A Few Other Positives
There’s also a modicum of additional good news to balance out all of today’s gloom and doom. For one, despite all the recent declines, the US textile and apparel industries are still managing to turn a profit. True, earnings and margins are down when compared to last year — but not any more than many other key US industries. Indeed, our mills seem to be faring a lot better than some other hard-hit sectors like autos and big-ticket appliance lines. Credit here has to go to increasingly savvy textile/apparel management personnel. They’ve helped avoid a major crisis by forging new global alliances, coming up with continuing new and improved products, reacting quickly to changes in consumer tastes, and last, but not least, cutting costs. This improving cost performance has also been aided by the recent tumble in cotton prices — from a peak of near 80 cents per pound earlier this year to only around 40 cents per pound at latest report. Much of this fiber drop can be traced to the worldwide economic crisis. But basic supply/demand forces are also playing a role. More to the point: Global consumption this year, according to Cotton Incorporated estimates, could actually show a fractional decline — enough to keep overall supplies, as measured by the stock/use ratio, at relatively high levels. And there’s even some hope for lower costs in the other major fiber sector — man-mades. True, quotes here are still running considerably above a year ago. But this, too, should change on a combination of slower demand, excess capacity, and sharply reduced petroleum-based feedstock costs engendered by the recent huge declines in crude oil tags.

December 9, 2008


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