Another Profitable Year
Robert S. Reichard, Economics Editor
Costs And Prices
As suggested above, much of the brighter profit picture just outlined can be attributed to lower costs and firmer prices — a combination that is resulting in a diminishing cost-price squeeze. The squeeze reached its height a year ago, when cotton, which accounts for as much as 40 percent of many clothing makers' costs, spiraled to more than $2 per pound — more than double that of a few months earlier. True, prices moved up in response, but not nearly enough to redress the balance. The result: last year's substantial profit declines. But now, the situation has improved substantially. Cotton has returned to near its pre-run-up levels, and both textile and apparel prices are currently running better than 5 percent above year-ago levels. More importantly, odds are this improved scenario will continue for some time. On the cost front, for example, early 2012 cotton production reports would seem to suggest an ample supply of this key fiber. And as for prices, while some discounting could well crop up as the year progresses, overall 2012 tags should manage to pick up some additional small gains. Right now, for example, basic textile mill product prices could move up another 2 to 3 percent. Factors behind this relatively upbeat price forecast include: somewhat less competition from imports, where high costs continue to plague overseas producers — especially in China, where double-digit pay hikes are often the norm; and better overall demand. On the latter score, U.S. textile mill activity this year, after correcting for inflation, looks to be up about 1 to 2 percent — making for the third straight year of small gains.
A Longer Look Ahead
Go out a few more years, and again, the outlook doesn't seem all that bad. To be sure, today's basically small mill and apparel output gains may eventually peter out. On the other hand, there's little to suggest any further major shrinkage — certainly nothing like some of the double-digit declines of the past decade. Global Insight's further-out 2014-16 projections, for example, point to only small annual production falloffs for both basic textile mill products — 3 percent — and apparel — 4 to 5 percent. And there could be some fractional gains for more highly fabricated textile mill products over this extended period — primarily because of an expected housing pickup at that time. All of the above are numbers the industry could live with, given both an improved cost-price structure, and the continuing development of new, improved and more profitable niche products that should be coming on stream over the next few years. All this shows up in Global Insight's newly revised profit projections for this period. In all three subsectors, earnings are expected to remain the same or even move slightly ahead of those projected for 2012 and 2013. True, such more-distant forecasts are always more iffy than those made for the next year or two. But statistically speaking, based on all of today's available information, they point to the most likely results. And no matter how you slice it, that's a positive sign.
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