Better Bottom Line
Robert S. Reichard, Economics Editor
Behind The Trend
Credit the two U.S. industries' improved profit performance to a combination of factors led by declining cost pressures. Consider raw materials, which account for 60 to 70 percent of a mill's sales dollar. In any event, the drop in cotton has been especially significant, with quotes here running near 30-percent under a year ago. Moreover, these costs - compared to early 2011, when the fiber commanded well above $2 per pound - are down by more than 60 percent. To be sure, the other big fiber input, man-mades, has been pressured by rising petrochemical feedstock costs. Even so, averages here are up only about 2 percent vis-à-vis a year ago. Nor does the other major cost factor, labor, seem to be presenting any problems. Thus, pay rates are expected to be up only 2.5 percent this year. That's a bit less than offsetting productivity, which currently is estimated to be rising at a near-3-percent annual rate. Implication: Unit labor costs are unchanged or may even be falling fractionally.
Another profit-sustaining factor is today's relatively strong demand. At last report, mill sales this year have been running slightly ahead of 2011 levels, with comparable apparel numbers up 5 to 6 percent.
Finally, a few words on imports: The fact that they have remained relatively unchanged this year implies that U.S. companies are no longer losing market share. Indeed, anecdotal evidence now suggests that the U.S. manufacturers' share of the overall market may actually be inching up, as a scattering of firms begins to bring some lost apparel production back to U.S. shores.
The Next Few Years
Even more important, Textile World editors feel this upbeat scenario is likely to spill over into next year and beyond. And, new industry profit estimates by Global Insight paint pretty much the same picture. Their analysts - using shipments less raw material and labor costs as a rough approximation of industry profits - see mills making basic textiles like fibers and fabrics repeating this year's double-digit gain in 2013, though with smaller 1- to 3-percent advances anticipated for the following two years. As for more highly fabricated mill products like carpets and home furnishings, Global Insight is calling for an equally impressive double-digit gain in 2013 - but, again, with smaller increases expected for the following two years. In the apparel sector, comparable big profit gains are now expected for next year, to be followed by 5- to 6-percent gains in 2014 and 2015.
And, on an equally encouraging note, the research firm's analysts anticipate a basically optimistic outlook for the remainder of the current decade. At that time, they're predicting further small advances for makers of highly fabricated mill products, with both basic product mills and apparel makers expected to hold onto virtually all of their 2012-2015 increases. In short, the U.S. industry is alive and well, and should continue to be so well into the future.
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