No Near-Term Pickup
Robert S. Reichard, Economics Editor
The Impact On Profits
The above near-term outlook can also be expected to keep industry earnings and margins under downward pressure. Net profit for basic textile products like yarns and fabrics, for example, are projected to show another decline this year - with totals for the year dropping 5 to 6 percent below 2008 levels. And a similar picture is seen for more highly fabricated mill products like carpets and home furnishings, where the earning slippage is put somewhere around the same magnitude. Apparel companies won't escape unscathed either - though the latest estimates here suggest a bit more modest 3-percent drop-off in the industry's 2009 after-tax earnings. In all cases, these declines are larger than those projected as recently as last fall before the extent of the current business meltdown became apparent. On a somewhat rosy note, however, all these textile/apparel subgroups should remain profitable - at least on an overall industry-wide basis. And clearly, there will be no repeat of the negative numbers that were reported as recently as 2000. Also worth noting: These new 2009 profit projections are also a lot better than those being made for many other consumer-oriented durable goods industries. This absence of any really big drop-off in mill and apparel manufacturers profits can probably be attributed to three factors: The above-mentioned more moderate fall-offs in consumer demand; reduced raw materials production costs; and rising worker productivity - which, when combined with only very modest hourly pay raises, has helped keep unit labor costs on a relatively even keel.
A Longer Look Ahead
The really big question mark, however, is what happens next year when things hopefully begin to turn around. Unfortunately, any quick bounceback seems highly unlikely. Right now, most economists and business analysts are betting on only a very modest 1- to 2-percent increase in the nation's GDP for 2010. The problem is that this won' t be nearly sufficient to generate enough purchasing power for any textile and apparel gains. Global Insight, for example, anticipates further domestic sales deterioration for these industries in 2010 - with declines that year put at 3.5 percent, 6.5 percent and 7.5 percent for basic textiles, textile mill products, and apparel, respectively. If any positive spin can be put on these numbers, it's the fact that analysts at this prestigious economic consulting and forecasting firm feel these shipment declines will be far less than the 15-percent-or-so drops anticipated for all three of these categories over the current year. Global Insight's profit forecasts also provide some reassurance of better days ahead. The firm's rough approximation of this key indicator representing sales less labor and material costs should actually begin to move up again next year in the textile sectors. If correct, it would follow four consecutive years of textile earnings shrinkage. Bottom line: The industry, while clearly a lot less smaller than it was a few years back, will still be a major world player as we move into the second decade of the 21st century.
April 14, 2009
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