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Business & Financial

A First Look At 2013

Robert S. Reichard, Economics Editor

Textile World 's annual trek to the crystal ball seems to be getting increasingly difficult. This time around, there have been more than the usual number of iffy factors to deal with -- questions that not only impact overall economic growth, but also the fortunes of the United States' domestic textile and apparel industries. These include the almost certain continuation of Washington political infighting, even after the modest year-end compromise. The trouble is that the new pact that prevented the U.S. economy from falling off the fiscal cliff does little more than push the really tough decision further on down the road. Then, there are two other disturbing uncertainties -- namely, the still-simmering euro crisis and a possible slowdown in the Chinese economy, which could hurt both global and U.S. growth. TW editors, however, are basically optimistic as far as all these questions are concerned -- feeling that, while uncertainties will persist, nothing catastrophic will happen. And the many economists TW has talked to are pretty much of the same mind -- with their 2013 average gross domestic product gain remaining in the 2- to 2.5-percent range. That should be enough to allow for modest textile and apparel growth as well as some significant improvement in bottom-line performance. Moreover, if its recent track record is any indication, TW 's projections won't be all that much off their mark. For example, 2012 numbers presented last January in most cases came within 0.5 to 1 percent of actual results.

BFgraph

More Thoughts
Meantime, a few more words on how TW sees things shaping up: First, there has been a very real trend shift away from the steady tattoo of sharp textile and apparel declines that marked the last few decades and toward the flat-to-slightly higher levels noted since 2010. These recent U.S. gains have been marginal, but the fact that they've persisted for three years suggests that this is not a temporary blip, but rather the beginning of a new, more positive future. That's not to say there will be any significant recouping of past huge losses, primarily because business recovery will be slow and import competition isn't about to disappear. True, the U.S.-overseas cost gap has been narrowing a bit, but not nearly enough to bring back any really substantial portion of the markets U.S. textile and apparel producers lost. Moreover, as costs in countries like China -- by far the United States' biggest foreign supplier -- rise significantly, there will be plenty of other countries willing and able to pick up Beijing's losses. However, there should still be plenty of opportunities for sizable gains by domestic firms that come up with more innovative products -- especially ones aimed at niche markets. A similar rosy outlook beckons for companies willing to invest in flexible, labor-saving equipment -- the kind that can both lower costs and better satisfy customer needs.

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Bottom Line Impact
All the above would also seem to bode well for domestic industry profitability. Indeed, the outlook -- both for the new year and the long pull -- is actually quite bullish. This is clearly the case for 2013, for which some really impressive increases loom ahead for all the textile/apparel subsectors -- basic mill products, fabricated mill products, and clothing. While somewhat better volume is one reason, a good part also reflects the sharp decline in material costs following the 2010-11 cotton price slump. As for the specific gains, new predictions by Global Insight provide the details. Analysts at this firm are calling for an almost doubling in 2013 after-tax earnings for both the basic and fabricated mill areas. And the improvement is even more dramatic in the apparel sector, for which a big jump is projected -- erasing the dismal performance of 2012, when clothing manufacturers as a whole barely managed to avoid dropping into the red. Nor should this gain prove to be a one-year aberration. Global Insight anticipates continuing, albeit small, advances for the following few years, with domestic textile and apparel profit levels in the 3- to 5-percent range over the 2014-16 period. Moreover, go even further out to the year 2020, and the United States' domestic firms should continue to more than hold their own. In short, U.S. companies are alive and well -- and likely to end up even stronger as the end of the decade approaches.

January/February 2013

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