The Changing Textile Scene
Robert S. Reichard, Economics Editor
Profits Take A Hit
But, as big as 2011 projected price boosts are expected to be, competitive pressures will prevent them from coming even close to offsetting spiraling fiber costs. As such, profit declines now seem virtually inevitable. Global Insight, for one, feels the 2011 shrinkage could be quite significant. Using its rough approximation of industry earnings — sales less material and labor costs — the economic consulting firm now projects major bottom-line deterioration in all three segments of the industry — basic mill products, more highly fabricated textile items and apparel. Looking at basic textiles first, Global Insight analysts put the 2011 profit drop at more than 30 percent. That's more than enough to erase last year's solid gain. And the pattern is pretty much the same for more highly fabricated mill products. This suggests that in both these sectors, profits this year will fall to their lowest levels in more than a decade. On a somewhat less gloomy note, the expected dip in apparel earnings will be in the somewhat lower 20-percent range — not nearly enough to erase all of this past year's big 50-plus-percent gain. Also on a bit more upbeat note, virtually all mills and factories - despite the cost-price squeeze — will manage to stay in the black. Another positive sign: Industry dollar shipments will continue to show advances this year - thanks to all the new price increases now being superimposed on a relatively steady volume of sales.
A Longer-term Bounceback
In short, the U.S. textile and apparel industries are going to survive this latest round of problems. Indeed, by next year, things should begin to look a lot better. For one, the current fiber cost runup isn't going to last forever. Given expectations of a big 2011-12 marketing year cotton crop, prices of the natural fiber are almost certain to fall back to more normal levels. This, in turn, should result in gradually improving 2012 and 2013 bottom-line performance. In fact, by the latter year, analysts at Global Insight see profits in all three textile/apparel categories staging a strong recovery — with earnings at that time running near or even a bit above this past year's tolerably good, pre-cost-runup levels. A relatively bullish macroeconomic outlook should also help this encouraging profit recovery along. Most economists, for example, now expect 3- to 3.5-percent annual growth over this extended period - enough to nudge overall U.S. consumer demand for mill and clothing products above current levels. American firms will also be helped by some slowdown in the rate of import gains. There are already signs, for example, that incoming shipments from China are being hurt by that nation's rising domestic inflation and a slowly appreciating yuan. The fact that foreign countries have already pretty much captured the United States' most vulnerable markets also suggests import deceleration. Together, these developments point to a 2012-13 halving of last year's near-19-percent import gain.
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