Inflation Works into U.S. Textile Supply Chain Adding to Consumer Fears
Source: globecotnews Date: 2008-03-04
Faced with rising prices at the gas pump and at the supermarket, U.S. consumers may have to contend with sharply higher prices for clothing thanks to a recent spike in prices, which, in turn, may compel consumers to sharply lower consumption of textiles and apparel over the coming months.
According to new data released by the Bureau of Labor Statistics (BLS), wholesale prices for textiles and apparel rose sharply in January from December 2007 and comparable year-ago levels. As measured in the BLS Producer Price Index (PPI) prices for yarns and threads rose by 1.3 percent from December, while prices for greige fabrics, finished fabrics and industrial textile products each rose by 0.7 percent, 0.9 percent and 1.0 percent, respectively. Perhaps more importantly, year-over year results show an even more dramatic jump in prices. When compared to January 2007 prices, January 2008 results show yarns and threads rose by 4.9 percent, while prices for greige fabrics, finished fabrics and industrial textile products rose by 2.8 percent, 2.3 percent and 2.2 percent, respectively.
For textiles, much of the increase in wholesale prices is a direct result of rising raw material and energy costs. Although it can take some months for textile prices to rise as a result of higher fiber prices, it is interesting to note that there is a strong correlation between rising prices for textiles and cotton. With cotton prices rising more than 25 cents a pound since early 2005, textile producers have little latitude to absorb those higher costs, as margins for textile producers remain razor thin in recent years.
At the same time, these increases follow nearly five years of declining wholesale prices for apparel and mark a significant about-face in prices. From 2002-2006, consumer prices for apparel actually declined, but beginning in 2007 prices began to rise at a gradual, but steady rate. Consumer prices as measured by the BLS Consumer Price Index (CPI) indicates that some price increases were passed on to consumers though the increases were certainly less dramatic than those exhibited by cotton and textiles.
There is little doubt that consumers have already felt the effects of higher wholesale prices as stated in the most recent CPI report. The January 2008 consumer price index for apparel rose by 0.2 percent in January. However, more importantly, over the past three months the compound annual rate for of growth in consumer prices for apparel rose at a steep 4.6 percent.
Needless to say, consumer sentiment is already in the doldrums. The Conference Board, a leading U.S. business and consumer research organization, said early this week that consumer confidence has fallen to its lowest level in nearly fifteen years. The Conference Board Consumer Confidence Index, which had declined in January, fell sharply in February. The Index now stands at 75.0 (1985=100), down from 87.3 in January. In November 1993, the Index stood at 71.9 at the height of a significant recession.
The net result is the potential for weaker demand for clothing and, consequently, textiles over the coming months. As described above, the price increases posted for apparel are far less severe than those posted in cotton and textiles suggesting the retailers remain reluctant to raise prices too fast on depressed consumers out of fear of making a bad situation even worse. Nevertheless, if apparel demand proves anemic in coming months while raw material costs continue to rise the entire textile-retail complex may be in for a serious bout of “stagflation” resulting in declining profits and potential shake-out of weaker companies in the supply chain.
