Page 15 - Tree Line - North Carolina Forestry Association - Fourth Quarter 2020

What has the economic landscape looked like for the past several months?
GrossDomesticProduct(GDP): GDP dropped 9.5% in the second quarter of 2020. Since record keeping began in 1947, quarterly GDP had never exceeded even a 3% drop (non-annualized).
Employment:Wellover30million people are still receiving government unemployment benefits — about 20% of the American workforce.
ConsumerSpending:Thismetric makes up more than two-thirds of the U.S. economy, and it sank by its sharpest rate in April — falling 12.6%. The weekly payments of $600 provided through the CARES Act helped to temporarily augment household income; however, those payments expired July 31.
MonetaryPolicy:Trillionsof dollars have been printed (“borrowed”) in an attempt to counteract the crisis. Despite the Federal Reserve’s direct injection
of cash into the economy, inflation has dropped to near zero — well below the ideal 2% rate — signaling deflationary pressure on the economy.
I think many people are coming to the realization that there simply isn’t a silver bullet for curing the virus, or solving the economic crisis caused by it. This is a scenario that continues to unfold, and one we will have to come to grips with in the comingmonths—andyears.
However, I also think it’s imperative that we focus on the inherent strength
of the U.S. economy as we entered the COVID-19 shutdown that took effect inMarch.IncomparisontotheGreat Recession that unfolded in 2007, which is perhaps the closest historical experience we can look to for guidance, the drivers
of the two events could not be more different. Unlike the Great Recession, the current economic crisis is not the result of overvalued asset bubbles or structurally weak markets. On the contrary, the DowJonesIndustrialAveragehitrecord levels in February amid accompanying economic data that, by any measure, had been stellar over the last several quarters. The underpinnings of the economy have been very sound.
The swift correction that has been progressing since early summer supports the notion that the U.S. economy is fundamentally strong:
• Total industrial production rose 5.4% in June;manufacturingoutputrose7.2%.
• New orders increased by 8.0% in June (the biggest percentage-point rise since August 2014), and 6.2% in July. Business investmentspendingincreasedby$2.1 billion, or 3.4% (-0.7% year-over-year).
• The Institute for Supply Management’s (ISM) monthly sentiment survey showed expansion of U.S. manufacturing to be accelerating in July. The Purchasing Managers’ Index registered 54.2%, up 1.6 percentage points from the June readingof52.6%,whichwasup9.5 percentage points from the May reading.
• In the forest products sector, the price index for Pulp, Paper & Allied Products fell 0.1% (-0.2% year-over-year) in June; Lumber & Wood Products: +1.9% (+2.5% year-over-year); Softwood Lumber: +11.0% (+18.6% year-over- year); and Wood Fiber: -0.5% (-2.8% year-over-year).
As an industry, the forest sector very much mirrors the steadfast fortitude of America’s larger economy. The sector is subject to some of the vulnerabilities that come with being global in nature, but its supply chains are stable, its markets are entrenched and demand for forest raw materials is strong. The data above, in combination with strong demand for a number of forest products, are indicative of the industry’s strength.
While the current uncertainty is still palpable, the situation has been a catalyst for the forest industry to rationalize production in the current market, which is a sign of industry health. Many other industries have not been so fortunate.
ISM Performance Indexes
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