Weaker 2011 Profits
Robert S. Reichard, Economics Editor
Some Specific Numbers
One hint as to where current and future profit levels will settle comes from the latest quarterly forecast from Global Insight, one of the nation's most prestigious economic consulting firms. Looking at the current year, the firm's analysts see a sizeable drop. Using their own approximate measure of industry earnings — shipments less raw material and labor costs — they see earnings for mills making basic textiles declining by an impressive 43 percent this year. That more than wipes out last year's big 38-percent comparable increase. And the profit slippages for both more highly fabricated mill products and apparel are projected to be even larger. But, as pointed out earlier, next year could mark the beginning of a turnaround. Global Insight's 2012 projections again tell the story. Profits in all three subgroups of the textile/apparel industry complex are expected to bottom out next year, though in no case will they come near to recouping 2011's expected declines. On the other hand, much bigger improvements are seen for 2013, when earnings in all subgroups should again be topping 2010's levels. One key factor behind these bullish earnings expectations: A continuing decline in raw material costs — costs which, at last report, accounted for anywhere from 60 to 70 percent of the textile/apparel shipment dollar.
Other Upbeat Signs
A better handle on costs, however, isn't the only reason for profit optimism over the longer pull. For one, a slowly improving economy will clearly play a role in shoring up domestic mill and apparel-maker bottom lines. So will an already apparent leveling off in imports. Looking at the economy first, all the current scare talk about a double-dip recession seems overdone. Encouraging factors that are often overlooked by purveyors of gloom and doom would have to include a reduced consumer debt load; a significant recovery in U.S. net worth vis à vis the recent recession low; continuing low interest rates; the huge amount of cash U.S. firms are sitting on; and new government stimulus moves. Given all of the above, it's not surprising that most recent surveys of top economists point to a still-positive 2-percent growth rate over the next year or two. Then there's the brightening import picture. Don't underestimate the fact that incoming shipments of textile and apparel on a square-meters-equivalent basis are now pretty much unchanged from year-ago levels. It marks a major shift from the double-digit increases of a few years ago. Moreover, when it comes to China, by far the United States' biggest overseas supplier, the year-to-year numbers are fractionally lower. And they're likely to remain so, as internal inflation and a slowly rising currency combine to make that nation's textile and apparel products a bit less competitive. In any event, Textile World now sees very little growth in overall textile imports over the next few years — something that, in turn, could help direct most of any future growth in U.S. consumption toward domestic suppliers.
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