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Business & Financial

An Uncertain 2009

Robert S. Reichard, Economics Editor

  I t's January again, and time for Textile World editors to take their annual trek to the crystal ball. One thing's for sure, it's not proving easy. Making forecasts especially hazardous this time around is the imposing list of unknowns and uncertainties that continue to plague the economy in general - and more specifically, the domestic textile and apparel industries. On the big-picture business front, for example, not only is it still unclear what additional government steps will be taken, but also there's no assurance on how effective they'll be once implemented. A good example here is the auto industry, for which the current $17 billion bailout is only the first step in what looks to be a long and difficult fight to keep Detroit afloat.

Current macroeconomic forecasts now making the rounds show a lot more than their usual variation. Indeed, the latest projections range all the way from more near-term modest declines followed by some leveling off by late in the year, to a further drastic plunge in activity to near depression levels. Zero in on textiles and apparel, and forecasts are further complicated by what overseas competitors - especially China - will do. TW is leaning toward the more optimistic view. Indeed, there already are scattered signs that textiles and apparel may not fare too badly. Thus, apparel retail sales this holiday season, while down, were not hit with the same kinds of declines experienced by other consumer products. True, huge discounts played a major role. Nevertheless, the recent performance would seem to rule out any big new textile tumble.

  newbfgraph

A Few Specifics
Given all the above, TW anticipates a relatively modest 5- to 6-percent decline in overall textile/ apparel activity for the new year. Much of the falloff is traceable to the two well-advertised suspects - the sagging US economy and potent foreign competition. But another portion could be merely statistical - TW will be comparing weak new 2009 numbers with the relatively strong ones of early last year, before business began to nosedive. Despite all of this, the overall projected decline will be a lot less than the past year's big 8- to 9-percent tumble. And the 3- to 3.5-percent drops seen for 2010 and 2011 also suggest a gradually improving textile/apparel picture.

Finally, if it's any consolation, the forecasted 2009 slippage will be nowhere near the 20-percent-or-so tumble anticipated for the struggling auto industry. One other note: TW 's forecasts, like all projections, are subject to some margin of error, which this time could be exacerbated by today's list of uncertainties. Nevertheless, it should be manageable. Indeed, when the final 2009 numbers are tallied, any deviations should be no more than plus or minus one percentage point from the projections contained in TW 's new forecast (See " Textiles 2009: Some Late Bottoming Out, But No Miracles," this issue).

A Closer Look At Profits
A few words on industry earnings also would seem to be in order. For one, the numbers - as reported by Uncle Sam's statisticians - cannot always be taken at face value. Shown in the table on page 37, they suggest that domestic mills incurred a sizeable loss in the year just ended - close to $500 billion, to be exact. But as pointed out in TW 's 2009 forecast, this was solely attributable to a big one-time jump in non-operational expenses like asset writedowns. It was in no way due to a deterioration in the industry's ability to produce textiles at a profit.

Point to keep in mind: this operating profit number is the one to be concerned with when assessing an industry's basic health. More importantly, there's little to suggest any big new declines in this key measure for the year just now getting underway. True, further shipment and production slippages will exert some downward pressure on profits. Nevertheless, the fact that costs and prices will remain under control should keep overall mill operations comfortably in the black. Bottom line: TW anticipates only a slight dip in operating profits over the new year. And even the official government number, assuming no big new non-operational expenses crop up, also should slip back into positive territory. Looking further ahead: If everything goes according to plan, overall profit levels should bottom out in 2010, with perhaps some fractional advances possible.

January/February 2009

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