* Record cotton costs being passed onto consumers

 * Impact of cotton rally to be seen later in 2011

 * Higher prices may spook recession-weary U.S. buyers

 By Rene Pastor

 NEW YORK, Jan 12 (Reuters) - U.S. consumers wracked by a
shaky economy and steep unemployment will likely think twice
about buying clothes from retailers trying to pass on cotton
prices that recently scaled a 150-year peak, analysts said.

 Americans have for years been used to cheap, cotton
clothing, especially when the fiber was hovering around 40 to
60 cents per lb.

 But that will change in 2011 after cotton prices rallied to
a level last seen in the 1861-1865 American Civil War.

 Cotton on the ICE Futures U.S. exchange hit a record
$1.5912 per lb on Dec. 21, 2010 and analysts expect it to jump
to $2 this spring, given tight supplies.

 (Graph on cotton prices: link.reuters.com/ban95r )

 So far, textile mills have had little trouble passing on
the cost of cotton to retail stores or brand outfits. The
question is whether they can continue to do so.

 "I am not confident this trend will continue well into
2011," Gary Raines, chief economist at financial services firm
FCStone, told Reuters in an interview.

 "The typical U.S. clothing shopper is accustomed to -- even
conditioned to -- expect flat to lower year-over-year changes
in apparel prices, and I don't see her maintaining the current
level of purchases when prices begin to rise," he said.

 Niche suppliers are already being hit, cutting out cotton
in some instances because the fiber price is simply too lofty.

 "The increase in cotton prices greatly impacted my spring
collection," said Jennifer Fritz, chief executive of Bambeeno
Cashmere, which specializes in high-end clothing for children
among others. As a result, Bambeeno has halved its
cotton-cashmere spring line-up.

 T. Jordan Lea, chairman of U.S. cotton merchant Eastern
Trading Co, said textile mills had been able to pass through
price increases for the first quarter of this year.

 ADJUSTMENTS WILL BE KEY

 The key for many retailers and manufacturers will be how
adept they are at containing the inflationary spike in cotton.

 VF Corp (VFC.N), whose brands include popular jeans such as
Wrangler and Lee, said price rises were inevitable.

 "Certainly many of the brands across our diverse portfolio
are planning for selective price increases," a VF official said
in a conference call last October.

 Retailers such as Gap Inc (GPS.N) and J. Crew (JCG.N) --
which design their own clothes and sell them in their stories
-- can customize fabrics and designs, giving them some
insulation from the price spike.

 Baby clothes maker Carter's said cotton prices were "the
big headwind" in its business.

 "We are very focused on how we can deal with an abnormal
spike in cotton prices," a Carter's official said in a
conference call last year.

 "We have raised prices for spring, not across the board,
not 100 percent, to cover that cost increase."

 FCStone's Raines said the full impact of sky-high cotton
prices would not be felt until later in the year, when clothes
made with fiber priced in the 2010 rally hit store shelves.

 "We feel the surge in cotton prices has not trickled down
the supply chain to retail store shelves just yet," he said,
adding the pain in retail stores should begin to be felt in the
second quarter of 2011.

 U.S. garment imports typically spike around August --
before the latest surge in cotton prices -- as the year-end
holidays approach, starting with Thanksgiving in late November
and running to Christmas and the New Year.

 "I have to wonder how a recalcitrant, frugal U.S. shopper
with lackluster consumer confidence and facing relatively high
unemployment will respond to this industry sentiment of higher
prices ahead," Raines said.

 "I fear she will not take well to the notion at all,
meaning painful fallout awaits across the global textile supply
chain for those without a comprehensive risk management plan in
place."