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Business & Financial
Robert S. Reichard, Economics Editor

A Questionable Holiday Season

Robert S. Reichard, Economics Editor

T his year’s Christmas buying could face some roadblocks. That’s not to say spending won’t end up in the plus column. It will. But gains won’t be quite so robust as hoped for earlier. Many consumers could be a bit more cautious as today’s sky-high gasoline and heating-oil prices eat into available income.

Equally important, Fed Chairman Alan Greenspan estimates higher fuel tags have trimmed almost 0.75 percent off gross domestic product growth this year.

Another possible drag on near-term spending: Consumers this year don’t have tax cuts and rebate checks to help boost their holiday outlays for apparel and other gifts. Some caution also is suggested by rising interest rates and recent, rather lackluster employment gains.

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How 2004 Shapes Up
Despite its near-term micro-economic assessment, the textile industry’s 2004 overall performance won’t turn out all that badly. It’s clear the big declines of earlier years are over, with some scattered gains now beginning to appear in some areas.

Textile World ’s preliminary estimates for the year tell the story. Looking first at production — output of textiles and textile mill products is likely to be off only about 3 to 3.5 percent vis-à-vis 2003. While hardly great, that’s less than half the 2002 drop-off.

Zero in on the trend here over the past six months, and you end up with a virtually flat pattern. Even more upbeat is the trend in the dollar value of shipments, where recent numbers actually are running a bit above a year ago.

The industry’s inventory situation is equally encouraging. Right now, figures show only a 1.38-months’ supply of basic textiles on hand — with holdings of mill products put only slightly higher at 1.64 months. Both numbers are well under year-ago levels.

The Bottom Line
Meantime, overall industry profits remain in the black — not only because activity has been bottoming out, but also because mill costs for the most part have been held in check. Thus, cotton now is running more than 20 cents per pound under year-ago levels, and unit labor costs (thanks to continuing productivity gains) have remained pretty much unchanged.

In any event, first-half 2004 Census Bureau figures show combined after-tax textile and textile product earnings now eking out a small gain. And the same is true of margins, where the average mill made about 0.5 percent on every dollar of sales. Hardly nirvana, but it’s actually slightly better than the year-ago reading and the losses racked up as recently as late 2002.

More importantly, this trend probably has continued into the third and fourth quarters. Analysts at economic forecasting firm Global Insight feel the recent level of earnings will continue into early next year — despite the ending of all import quotas in a few months.

Some Thoughts On 2005
While cautiously optimistic, TW isn’t 100-percent sure the above profit estimate will be hit. One big concern, of course, is imports — and, more specifically, how the China card will be played out. Since 1999, when some quotas were lifted, imports of shoes and apparel from that nation jumped 50 percent and now top $27 billion. Much of this spurt can be traced to unfair trade practices that include government subsidies to Chinese mills, currency manipulation whereby the yuan was held at unrealistically low levels, and the practice of granting Chinese textile and apparel producers big loans that rarely are repaid. Some critics say these practices allow the Chinese to reduce their asking prices by as much as 50 percent.

Karl Spilhaus, president, National Textile Association, notes the “benefits of free trade are being washed away by China, which is creating a monopoly.”

Even the World Trade Organization would seem to agree — anticipating that once all quotas are removed, China could well be supplying 56 percent of the US apparel market. To be sure, some action to stem the tide is likely. But exactly where and to what extent are still unanswered questions.

Forecasting the upcoming year is extremely iffy. But the industry has survived such challenges before; TW is willing to bet it will do it again.

November 2004

Related Files:
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