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Business & Financial

A Good 2013 Start

Robert S. Reichard, Economics Editor

The macroeconomic picture is looking considerably brighter these days. For one, the recent holiday season turned out to be a little better than previously estimated -- with the gain vis-à-vis a year earlier now put at near 3 percent. Even more impressive is the growing number of signs that the uptrend will spill over into the spring and beyond. These signs include: recent Washington legislation guaranteeing that income taxes won't be rising for some 99 percent of the nation's families; relatively low inventories that should assure that any new orders will quickly be translated into new production; continuation of the relatively flat import pattern of the past few years; and expectations for another year of strong profits. Further reinforcing all this upbeat news is a new 2013 manufacturing outlook survey conducted by the Institute for Supply Management (ISM). With few exceptions, survey respondents -- the nation's top industrial purchasing executives -- see 2013 as a better year than 2012. Looking first at overall U.S. factory shipments, the new study anticipates a surprising 6.6-percent gain vis-à-vis a year earlier. That's a fair-sized improvement over the 4-percent gain they anticipated last January, when a similar survey was conducted.


Equally encouraging, respondents say that U.S. manufacturers plan to step up their purchases of new, more efficient capital equipment. Specifically, a significant 7.6-percent increase in this key business barometer is anticipated for the new year. And this, in turn, is expected to result in an equally impressive 6.8-percent increase in domestic manufacturing capacity -- enough to recoup a good part of the losses of the past few years.

A Firm Apparel Market
The new survey is equally positive for 2013 when looking at the U.S. domestic clothing industry. Thus, despite continuing Washington uncertainties, domestic apparel shipments this year are expected to actually run ahead of 2012 levels. And the picture is pretty much the same when zeroing in on these same companies' capital spending plans. This latter finding is particularly significant -- if only for the fact that it provides a clear-cut indication that industry executives are willing to invest substantial sums in their efforts to remain viable and successful.

Meantime, another encouraging ISM survey finding: The nation's apparel executives are now also more positive about the second six months of the year than they are about the first six months. It suggests that recent industry gains, instead of flattening out, are likely to accelerate a bit as the year wears on. Unfortunately, the report does not provide any industry-by-industry details on the profit outlook. But when it comes to textiles as well as apparel, there is plenty of other evidence to support projections for substantial 2013 earnings gains. One major factor here, say company executives, is the expectation that costs will drop significantly this year as basic fiber expenses slip far below their shortage-inspired peaks of a few years back.

Political Uncertainties
There is, however, one big question mark that remains: What will Congress do about the still-simmering "fiscal cliff" crisis? It's an important question, too -- for lawmaker actions over the next few months could have a big impact on both the overall U.S. business climate and domestic textile and apparel activity. The basic problem is that the recent year-end agreement only tackled the tax part of the fiscal equation -- leaving spending cuts and the debt ceiling questions still unanswered. On the latter, for example, letting the Treasury run out of borrowing authority could mean a default in the nation's credit -- something that could have a major negative impact on both domestic and international markets. Despite this threat, however, Textile World feels that there's no need to push the panic button. Some sort of accommodation is almost sure to be reached. Either many of today's uncertainties will be revolved, or major decisions will be postponed until some future date. Upshot: Little danger of a double-dip recession. In fact, quite the contrary: Odds now actually seem to favor some sort of modest gross domestic product acceleration toward year-end -- to perhaps a 2.5-percent annual rate. This growth could further be aided by some gains in state and local employment after the big declines of recent years. All this, in turn, could help keep the crucial U.S. jobless rate trending down -- perhaps to a somewhat more tolerable 7.3- to 7.5-percent level by next fall.

February 20, 2013


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