A Mid-year Appraisal
Robert S. Reichard, Economics Editor
A Closer Look At Profits
This decline for profits and margins is already beginning to show up in official government statistics, which as of TW 's press time, carry only into the first quarter of the year. During that three-month period, after-tax earnings for the overall textile industry dropped more than 20 percent under the comparable year-earlier levels — reversing the solid gains that were reported throughout the previous 12 months. Moreover, while no second quarter numbers are available as yet, all the evidence would seem to point to continuing declines. The big question, of course, is: Just how much longer will this erosion continue? The answer: Probably through the remainder of the year — at least that's what Global Insight, a prestigious economic forecasting firm, is saying. The company's analysts, using their own approximation of industry profits — dollar shipments less the raw material and labor costs that make up the preponderance of textile mill expenses — put the overall slippage at more than 50 percent for both the basic mill and more highly fabricated mill product segments of the industry. These same people see an even sharper earnings drop-off in the apparel sector — probably because of strong consumer resistance to large clothing price increases. Global Insight, for example, expects little more than a 2-percent boost in average apparel tags this year. But profits should turn around again by next year. And by 2013, earnings in all areas — basic mill, fabricated mill products and apparel — could well recoup all the recent declines, with bottom lines again approaching the relatively good levels of this past year.
Behind The Optimism
This improving profit outlook for 2012 and beyond is based on a lot more than just wishful thinking. Factors likely to keep the industry healthy over coming years would have to include: expectations of falling cotton costs; little or no increase in unit labor costs; a slowing down of import gains as overseas costs and prices continue to move up; and tolerably good domestic demand. On the latter score, we now expect textile output to hold at current levels through 2012 — with perhaps some fractional gains when it comes to more highly fabricated mill products. To be sure, apparel and output may edge a bit lower next year. But any decline here will be modest — nowhere near the 20-percent and higher slides of 2007, 2008 and 2009. Finally, a few comments on the really long term — out into the end of the decade: Here again, using Global Insight projections, the picture remains far from gloomy, with average textile mill production shrinkage over this extended period put in the low 1- to 3-percent annual range. Again, that's a lot different from the losses of the past 10 years. And Global Insight's extended forecasts for profits are even more positive. Indeed, mill earnings at the end of the decade are expected to actually be higher than they were in 2010, which was a relatively good year. And clothing manufacturers can expect pretty much the same pattern. In short, the U.S. textile/apparel complex is alive and well.
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