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Business & Financial
Robert S. Reichard, Economics Editor

Good News On The Fiber Front

Robert S. Reichard, Economics Editor

R ecent declines in cotton tags are relieving some of the cost pressure on hard-pressed mills. Spot quotes have been hovering in the low 40s range — some 35 percent under earlier-in-the-year peaks, and about 20 percent under the 50 cents-per-pound and higher prices that prevailed last summer.

Some upward correction can’t be ruled out, but it’s likely to be small, with cotton remaining relatively soft through the rest of the year. Behind the slippage: revised forecasts calling for higher production — with gains now projected for both US and global output. US production is now pegged at near 18 million bales — 2.2 percent above earlier estimates and 11 percent above last year’s level.

A not-too-uncomfortable cost picture also seems to be shaping up in the man-made fiber sector. True, some constructions like polyester and rayon are up — but only enough to offset weakness in other areas. Upshot: Man-made price averages are pretty much where they were last year at this time.

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No Real Labor Headaches Either

Worker pay costs also remain pretty much under control. At latest report, average hourly earnings in both the basic mill and textile mill product sectors were running less than 1 percent above a year earlier. Equally important: Given estimated productivity gains over the same period, unit labor costs have probably held steady or perhaps even declined a bit. Bottom line: Material and labor costs haven’t been posing too much of a problem — and aren’t likely to do so in the quarters immediately ahead.

The fact that all these costs haven’t risen — when added to the recent bottoming-out in demand and prices — helps explain how textiles (at least on an overall basis) have remained in the black.

The latest Census Bureau profit numbers are on the anemic side — only about $110 million on an after-tax basis was reported in the first quarter 2004. That’s nowhere near the relatively robust levels prevailing just a few years ago. Nevertheless, these figures do represent a positive sign — helping to offset the import and other problems that have been plaguing the industry in recent years.

A Near-Term Look Ahead

The remainder of 2004 doesn’t seem to be shaping up all that badly. There are a few negative factors that could affect textile and apparel demand — namely high energy costs plus the diminishing stimulus coming from past tax cuts and home refinancings. On the latter score, such refinancings are expected to drop 70 percent from the second to the fourth quarters.

While these developments will slow down economic growth, they won’t stop it completely because there’s still an impressive array of plus factors operating. These include extremely high consumer confidence; improving personal income (rising at a 6-percent rate in the second quarter as income and job rates continue to inch up); and current relatively low interest rates, which, despite recent increases, remain well under levels of a few years back.

It’s a scenario that suggests 3-percent-or-so gross domestic product annual rates of gain for both the third and fourth quarters — nothing spectacular, but probably enough to keep textile and apparel buying at fairly firm levels.

Specific Projections

Mills are likely to fare considerably better than they did last year. Given current trends, overall 2004 textile mill output isn't likely to fall more than 2 to 3 percent under the 2003 level. Hardly nirvana, but a heck of a lot better than the big 7-percent decline reported last year.

Moreover, compare Textile World ’s second-half 2004 projections to actual second-half 2003 results, and the decline in mill output pretty much disappears. Beyond year end, however, the picture becomes a little more fuzzy. For one, the ending of import quotas in January is bound to have some impact. But where and to what extent remain big questions.

Finally, there are general business conditions that traditionally become more iffy the farther one goes into the future. Upshot: At this stage of the game, early 2005 textile mill forecasts could be prone to considerable error. Nevertheless, a continuation of the current flattening in demand and relatively unchanged prices is predicted — a not-all-that-downbeat forecast given the industry’s recent declines and all the uncertainties looming ahead.

September 2004


Related Files:
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