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May-June 2016

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palletcentral.com PalletCentral • May-June 2016 19 continue to grow at the 3% rate for the next year. Several other key sectors are improving. Housing starts have trended higher pushing expenditures on residential investment up 9% over the last year. Although government spending growth is only near 1%, it is no longer contracting. Housing and government expenditures are expected to continue improving over the next year as well. Turning to the Dark Side of Oil Price Decline So let's turn to the reason oil prices have not helped more. Weak business investment (up only 1.5%) and the large and growing trade deficit (net exports) are in part due to the drop in oil prices. The high oil prices from early 2010 through late 2014 set off an investment boom in U.S. oil rigs. The number of oil rigs in the U.S. shot up nearly 8-fold from 2009 to late 2014. There were 1600 oil rigs operating in the U.S. by late 2014. The surge in rigs and in U.S. oil production contributed to the eventual collapse in oil prices. As oil prices fell from $100/barrel and touched a low point of $30/barrel early this year (currently near $40/barrel), the investments in oil wells were curtailed. This month the number of rigs operating just hit 351. This sharp drop in the investment by the U.S. energy industry is one of the reason business investment is up only 1.5%. The sharp drop in production has also cut employment in the energy industry as well, hitting Texas and North Dakota hard. This was what the OPEC producers (particularly Saudi Arabia) hoped would happen. OPEC did not curtail production to accommodate the surge in U.S. oil production. Production of U.S. oil began to fall this year. Just a quick reminder of the good news for pallet producers. Since oil rig mats are produced primarily with hardwood lumber, the drop in oil rigs has contributed to the

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