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Page 20 of 47 PalletCentral • September-October 2015 21 events might affect growth. As it has turned out, the strong trade headwinds had a particularly severe impact on the growth in industrial production. Although GDP is a good measure of overall economic activity, industrial production is a better indicator for the demand of pallets. The deterioration in the U.S. trade balance in manufactured goods (excludes oil and services) is shown in the chart (U.S. Net Trade in Manufactured Goods). The U.S. trade gap had been relatively stable for several years near $400 billion, but then fell a whopping $100 billion over the last year. In that year, exports grew only 1%, while imports grew over 5%. Historically, industrial production grows faster than GDP during a recovery, as was the case in late 2014. This did not happen in the first half of 2015. While GDP grew about 1.5%, industrial production grew a paltry .4%. There are two primary reasons for the deteriorating net trade position. First, the U.S. dollar has strengthened against other currencies. At a time the Federal Reserve is considering an increase in U.S. interest rates because of healthy employment growth, other countries are still taking action to promote growth. For instance in Europe, policy actions by their central bank and the Greek financial crisis put downward pressure on the Euro. For different reasons, the Ruble has collapsed, the Canadian dollar has declined, China just devalued the Yuan, and the Brazilian Real declined sharply as well. A strong currency is good for the consumer, since it means the price of imports is falling. It is bad news for U.S. producers however, because import prices are falling, while the cost of their goods is rising in the offshore markets. The other factor holding back export growth is sluggish or slowing growth in offshore markets that reduce the demand for imports. These conditions will not improve much in 2016. Another drag on growth over the last year has been cuts in spending by the Federal Government. With the U.S. budget deficit now at lowest level in 7 years, I had expected spending to accelerate this year and boost the economic growth. That has not happened. Spending by the Federal Government continued to contract in the first half of 2015. Given the political posturing for the 2016 Presidential election it appears that the Federal Government will continue to cut back spending. An Aside: Good News on L umber Prices On the plus side for pallet manufacturers has been the decline in lumber prices. The international events that have lowered growth have also hit the forest products industry as well. Both lumber and log sales to China fell off sharply late last year. Russia shipments of lumber and logs have grown as a result of the weaker Ruble. The T.L.B. FOREST PRODUCTS INC. Contact: Gaétan (Ext. 223) or Oliver (Ext. 226) E-mail: Tel: 450-492-5130 fax: 450-492-5918 1336, Chemin des Anglais Terrebonne QC J6X 4G3 The Canadian Birch Specialist Ready to Nail Pallet Components HARDWOOD LUMBER WHITE BIRCH & ASPEN CANTS AND PRECUT

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