Mill Earnings Hold Up
Robert S. Reichard, Economics Editor
The picture is much the same for domestic apparel makers, where first-quarter after-tax profits and margins actually ran slightly above the overall 2006 average.
These trends seem likely to continue — at least that’s how analysts at Global Insight see it. Specifically, this economic forecasting firm’s measure of textile mills’ gross profits — sales less wage and material costs — is expected to hold virtually unchanged over the next few years. Zero in on the apparel sector, and this gross profit measure actually rises a bit for 2007 and 2008. If anywhere near accurate, this projection suggests US textiles and apparel could continue to hold their own in the global marketplace.
Even if President George W. Bush should veto such legislation, these kinds of actions could well provide some political cover for Washington to take a tougher line. In any event, one point seems clear: The huge overall trade deficit with China can’t continue. At just over $230 billion in 2007 — one-third the total deficit with all trading partners — the red-ink figure is on track to move up a lot further this year. This circumstance has enabled the Chinese to capture a huge 30 percent of the overall US apparel market — a figure that could take another significant jump once the remaining quotas on many textile/apparel categories are removed. The National Council of Textile Organizations (NCTO) is asking that Chinese exports in key categories continue to be kept under some sort of restraint once these so-called “safeguard” quotas are removed. NCTO President Cass Johnson further emphasized the problem, noting ongoing negotiations are supposed to increase trade, not hand it over to countries that don’t play by the rules.
The next few months will bear close monitoring, but Textile World feels some sort of compromise is likely. Reason: The US and Chinese economies are already too interconnected for a trade war to be anything but a lose-lose situation. But aside from all this, there are economic pressures — in the form of rising Chinese wage rates — that could also play a role in how the China card plays out. Specifically, Chinese wage costs are up 10 percent or more in many of that nation’s cities, something that could eventually erode the country’s reputation as the world’s lowest-cost producer — especially in such cheap labor-intensive products as textiles, apparel and shoes.
Download Current US Textile & Economic Indicators.