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Yarn Market

Spinners Optimistic In Light Of Retail Sales Growth

Jim Phillips, Yarn Market Editor

After a slower-than-expected January, orders for some spinners began to pick up in early February, further reinforcing guarded optimism for 2014 business prospects.

“Things have begun to pick up, especially in the last week or two,” said one spinner. “We had a period at the start of the year that was slower than we had hoped, but that is not unusual. There is a lot of post-holiday inventory adjustment going on. As well, many customers are still in the process of assessing their needs for the next few months. Recent economic indicators give us reason to hope that 2014 will be a year of solid growth. More and more people, despite the continued chaos in Washington, are beginning to be optimistic about the future.”

Added an industry insider: “It seems that many consumers are finally embracing the notion that the Great Recession is really and finally over and that recovery is real. We see a lot of reports about a general loosening of the purse strings, as consumers begin to buy some of those items they may have put off for the past few years.”

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These assessments were backed by recent figures released by multiple organizations. The U.S. Census Bureau announced last week that the combined value of distributive trade sales and manufacturers’ shipments for December was more than $1.3 billion, up 3.8 percent from December 2012. Distributive trade includes wholesale and retail trade; and repair of motor vehicles, motorcycles, and personal and household goods.

The Conference Board Consumer Confidence Index® is also on the rise. The index increased to 81.8 in December, up from 79.0 the previous month. “Consumer confidence advanced in January for the second consecutive month,” said Lynn Franco, Director of Economic Indicators, The Conference Board. “Consumers’ assessment of the present situation continues to improve, with both business conditions and the job market rated more favorably. Looking ahead six months, consumers expect the economy and their earnings to improve, but were somewhat mixed regarding the outlook for jobs. All in all, confidence appears to be back on track and rising expectations suggest the economy may pick up some momentum in the months ahead.”

Providing even further reason for optimism is the increase in holiday sales. According to the National Retail Federation (NRF) — the world’s largest retail trade association — December retail sales, which exclude automobiles, gas stations and restaurants, increased 0.4 percent seasonally adjusted month-to-month, and 4.6 percent unadjusted year-over-year. Total holiday retail sales, which include November and December sales, increased 3.8 percent to $601.8 billion, which was in line with NRF’s projected forecast of 3.9 percent and $602.1 billion. In addition, non-store holiday sales, which is an indicator of online and e-commerce sales, grew 9.3 percent to $95.7 billion. Of particular interest to spinners is the growth in textile/apparel-related sales. Clothing and clothing accessories sales increased 1.8 percent seasonally adjusted month-to-month and 4.7 percent unadjusted year-over-year.

“Retail sales have been volatile all year and the holiday shopping season was no exception,” NRF Chief Economist Jack Kleinhenz, Ph.D., said. “Solid job growth in the months of October and November led to a more-confident consumer and healthy holiday shopping season for many retailers. While economic and policy uncertainties remain, the economy seems set for steady growth in the New Year.”


Margins Still Tight
Despite the general optimism among spinners, there are still many concerns — with pricing and margins at or near the top of most lists. “We can sell all the yarn we can make or buy,” said one spinner, “but it won’t do us any good if we can’t make money. Margins for a lot of us in the industry are still razor-thin. Now we see the price of cotton headed up again. As of right now, the increases week-to-week are relatively small, but every penny impacts us.”

Average spot cotton quotations were 222 points higher than the previous week, according to the U.S. Department of Agriculture’s (USDA’s) Agricultural Marketing Service. Quotations for the base quality of cotton in the seven designated markets measured by the USDA averaged $84.35 cents per pound for the week ended Thursday, Feb. 13, 2014. The weekly average was up from $82.13 cents the previous week and $76.52 cents reported for the same period last year.

“Even though our prices are starting to go up again, we are getting a lot of pushback from customers,” said one spinner. We have to fight for every penny.  As a result, we have to continue to be as efficient and productive as possible to maximize the potential for any return.”

Added a yarn broker:  “It is in everyone’s interest right now to try to maintain stability.  We have had a relatively stable industry the past year, but, as everyone knows, it doesn’t take much for both price and demand to take off at any time, creating artificially high costs and short supplies.  And, if you will go back and look, you will see that every meteoric rise has been followed very closely by a devastating fall. What we’re about these days is trying to remain ‘steady as she goes.’”

February 21, 2014
 

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