Issue link: http://palletcentral.uberflip.com/i/685770
20 PalletCentral • May-June 2016 palletcentral.com decline in hardwood lumber prices. Another major event was the surge in the U.S. dollar relative to several key currencies. The large decline in oil prices (as well as other commodities) hit the net trade position of several countries. The exchange rate for some major currencies has dropped sharply. The Russian Ruble has been hit by both trade sanctions and the drop in oil prices. The large drop in the Canadian Dollar is related to oil and other commodity prices. The exchange rates are particularly important to the wood products industry. For several years, U.S. log exporters (Hemlock logs) were able to get very good prices exporting logs to China. As the Ruble and NZ dollar fell however, the delivered log price in U.S. dollar terms fell. In terms of Rubles, Russian log prices are up. As a result of the relative price shift, U.S. log exports to China are down 50% from peak levels in late 2014. This brings us back to the part of the economy that a pallet producer really cares about: Industrial Production (IP) of manufactured goods. The growth in IP has been even weaker than the overall economy. Overall IP for manufactured goods is running only .6% above year ago levels. Similar to logs, the price of manufactured goods produced in the U.S. has gone up relative to global competitors, while the prices of imported goods have declined. The U.S. dollar should remain near current levels for the next few years, which will contribute to further declines in our trade position. Thus, industrial production will grow at about the same rate or a little slower than GDP. Bottom Line: Slow Growth but no Recession in Sight A few key elements of the economic outlook are summarized in the chart above. Overall growth should remain near 2% or slightly better. Concerns about a potential recession this year were unfounded and there is no reason to expect one for a few years yet. The slower growth also has one positive side as well. The outlook for interest rates has also been revised down. The Federal Reserve (Fed) did boost interest rates for the first time last year and announced plans to keep moving rates higher through 2017. But slower growth and the turmoil in global financial markets have given the Fed reasons to move more cautiously. PC E CO N O M Y Lynn is president of Strategic Economic Analysis, a compa- ny which assists business managers in thinking about the future. Although the primary focus of his firm is housing and wood products, the company stays current on overall eco- nomic activities in the USA and globally. Lynn may be reached at lmichaelis@getfea.com or phone: 206-434-8102. Since oil rig mats are produced primarily with hardwood lumber, the drop in oil rigs has contributed to the decline in hardwood lumber prices.