By Jim Damicis, Senior Vice President, Camoin Associates
The forest and lumber economy have been a foundation for the U.S. since its beginnings and the issues, trends, and its connections to the economy as a whole is constantly evolving. The forest and lumber economy is highly influenced by a host of market, policy, and regional and global factors. It is no surprise therefore that is also impacted and will continued to be impacted by COVID19. In this article, we provide an overview of recent economic and market trends for forest and lumber industry sectors. We then examine data on specific impacts of COVID-19 by looking at key market factors. We end with a few recommendations for professionals interested in business and economic development.
Industry Market Trends
For purposes of this article, forest and lumber included the following NAICS1-based sectors:
• Timber Services (NAICS 11311): Manage timber lands and sell timber to downstream wood, pulp and paper producers.
• Logging (NAICS 11331): Cutting/felling trees to produce sawlogs for use in sawmills and pulp mills.
• Forest Support Services (NAICS 11531): Assist downstream timber and logging operators in timber valuation, forestry
• Sawmills and Wood Production (NAICS 32111): Saw dimension lumber, boards, beams, bolts, poles, shingles, siding and wood chips from logs. Also, chemically treat lumber to preserve and protect it from fire.
• Wood Paneling Manufacturing (NAICS 32121): Manufacture veneer, plywood, engineered wood or reconstituted wood products.
• Prefabricated Home Manufacturing (NAICS 32199a): Produce manufactured (mobile) and modular (prefabricated) homes and buildings.
• Miscellaneous Wood Product Manufacturing (NAICS 32199b): Includes wood product manufacturing not produced by sawmills or by manufacturers of veneer, engineered wood, millwork and mobile homes. Includes wood ladders, cabinets, kitchenware, broom handles, kiln-dried lumber, reels and toothpicks.
• Wood Pulp Mills (NAICS 32111): Manufacture pulp without processing it into paper or paperboard
• Paper Mills (NAICS 32122): Manufacture paper from pulp.
• The following data on forest and lumber industry economic performance is from IBIS World Industry Reports, www.ibisworld.com. Data is for 2019 or 2020 depending on subsector and will be referred to as 2020. It represents twelve-month data unless otherwise specific.
In 2020, there were 84,769 establishments employing 433,371 persons in forest and lumber industries in the U.S. The largest employment sectors were logging (89,271 jobs), sawmills and wood production (86,477 jobs), and wood panel manufacturing (85,368 jobs).
In 2020, the forest and lumber industries generated $144 billion in revenues with the largest subsectors being paper manufacturing ($38.2 billion), sawmills and wood production ($34.5 billion), wood paneling manufacturing ($27.9 billion). Figurers 1 & 2 show the breakdown of revenues by subsectors for both on the natural resources side of forest and lumber and the wood products side.
In the past five years, both pulp and paper mills experienced revenue declines (-1.3 percent and -4-7 percent respectively) while logging remained relatively flat. All other subsectors experienced growth at an annual rate between two percent and five percent. For the next five years, paper is expected to continue its revenue decline while all other sectors are projected to experience revenue growth, though at annual rates of less than two percent (see Figure 3). Lower growth is projected to be a factor of slower global economic growth and recessionary conditions in the next one-to-two years resulting from COVID-19.
In 2020, exports on forest and lumber products and services in the U.S. were valued at $16.8 billion with the largest export sectors including pulp manufacturing ($5.9 billion), sawmill and wood production ($3.9 billion), logging )$2.3 billion), and paper manufacturing ($2.3 billion) (see Figure 4).
In terms of countries exporting to, the highest value of exports go to Canada, Mexico, China, Japan, and the United Kingdom (see Figure 5).
COVID-19 Impacts on Forest and Lumber
COVID-19 has impacted every aspect of our economy both nationally and globally. In just the first few months of spreading, the U.S. went from historic low unemployment to historic high unemployment and a recession economy. Forest and Lumber sectors are no exceptions and the impact of COVID-19 is a result from these sectors being intertwined within the global economy and relaying on global trade and supply chains as well as reliant on consumer end markers including residential and commercial construction, paper, and wood products such as furniture.
To help understand market risk related to COVID-19, IBIS World has created a detailed and comprehensive index of exposure for nearly every industry. It integrates risk based on trade with China, supply chains, and the business environment into an overall exposure index. Taking a look at the exposure index for forest and lumber sectors, four of the six measured (sawmills and wood production, wood paneling, wood product manufacturing, and wood pulp have high-levels of exposure while two have medium levels of exposure (prefabricated home manufacturing and paper mills) (see Figure 6). The high level of exposure to COVID-19 risk for these sectors is driven by the importance global trade and supply chains.
Looking deeper into exports, COVID-19 has had an impact on U.S. exports. According the U.S. Census Bureau and Bureau of Economic Analysis, in April 2020, the total value (in seasonally adjusted dollars) of all U.S. goods exports was $95.5 billion. This is down $32 billion from March 2020. Year to data in April 2020 versus 2019 shows a decrease of $57 billion (see Figure 7). Forest and lumber products have felt this impact as well, experiencing a year to date decline of $547 million for pulpwood and woodpulp and $45 million decline for manufactured wood supplies.
Job losses and lower job demand has also resulted from COVID-19 as business have been shuttered and workers have lost or have had their jobs put on hold. Again, the forest and lumber industry is no exception. The amount of month-to-month changes in job postings (postings for job openings by employers) provides real times data on industry impacts. Fortunately, this data is available from several sources specializing in employment and occupation data including EMSI. EMSI reports that U.S. jobs postings in May 2020 across all sectors are down 27 percent from May 2019, a clear indication of weakened employment demand and overall economic demand. Forest and lumber sectors in May 2020 compared to May 2019, including jobs postings in forest and logging are down 31 percent, down 15 percent in paper manufacturing, and down 44 percent for support activities for forestry and agriculture (see Figure 8). It should be noted that some positive signs do exist when comparing May 2020 to the previous month, April 2020, as postings for forest and logging increased six percent and 13 percent for support activities.
In addition to the data specific to forest and lumber, there are multiple key economic variables that influence market performance. They include the following:
• Prime Lending Rate
• Trade Weighted Index
• Housing Starts
• Private spending on home improvements
• Domestic Demand for Lumber
• Consumer Confidence
• World Price of Crude Oil
Here we examine a few that are significantly impacted by consumer demand and therefore COVID-19.
The housing market is a critical demand element for forest and lumber sectors. After increases following the great recession of 2008, U.S. housing starts plummeted in April 2020 to 891 thousand. This is down from 1.3 million in March 2020 and April 2019 (see Figure 9). While construction has been considered an “essential service” during COVID-19, consumer and developers concerns over the market and loss of disposable income have resulted in this significant drop in activity.
Home Improvement Spending
Private spending on home improvements is also a major demand market for forest and lumber sectors. After five years of increases to $216.52 billion in 2019, private spending on home improvements in the U.S. is expected to decrease to $191.95 billion in 2020 as a result of COVID-19 recension impacts, again resulting from concerns over market and loss of disposable income. Spending on home improvements is then projected to grow at an annual rate of 2.7 percent through 2025 based on decreasing unemployment and rising income (see Figure 10).
No doubt and understandably so, all the uncertainty over the extent COVID-19 and its projected duration has rocked consumer confidence. The Conference Board Consumer Confidence Index® held steady in May, following a sharp decline in April. The Index now stands at 86.6 (1985=100), up from 85.7 in April See figure 11). The forest and lumber sectors will continue to be impacted by COVID-19 at least until consumers are back to work and feel safe making purchases and investments.
As the economic and market data indicate, forest and lumber industries are a major part of the U.S. economy. They are also highly connected to the global economy, supply chains, and subject to volatility based on consumer confidence and demand. They have been therefore considerably impacted by COVID-19. How long will these impacts continue? When will demand for products and services related to forestry and lumber products and services begin to rise and how rapidly? How much longer will global supply chains and trade be impacted? Like with the COVID-19 pandemic itself, the answer is hard to project. Based on the data it is fair to say that forest and lumber sectors will continue to be impacted in 2020 and well into 2021.
So, what to do if you are a business and economic development professional in areas are markets with moderate to high levels of forest and lumber sectors? Here are a few tips:
• Support the industries and businesses in seeking to diversify products, markets, and supply chains including domestic trade.
• Continue to assist with support for obtaining needed workforce – finding loggers, truck drivers, and manufacturing workers prior to COVID-19 was a challenge and even with high unemployment will be a problem as the economy improves.
• Closely follow leading indicators and indicators that drive demand including those presented in this article and when possible track the data to the regional level.
• Let private sector industry partners lead – Forest and lumber sectors are complex and require deep knowledge of production and distribution supply chains, demand markets, and workforce skills. Support the industry associations and consortiums in your state and region to build the capacity to respond directly to business and industry needs.
1 North American Industry Classification System
About the Author
Jim Damicis, Senior Vice President, Camoin Associates
Jim Damicis has more than 30 years of experience in economic development and policy research and analysis. Jim is currently the Senior Vice President for Camoin Associates and serves as a project principal as well as is responsible for business and market development, and research initiatives. He specializes in analysis and strategy for local and region economies and business and industry intelligence.