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state of the economy3/15
Every year there's discussions on this forum about the state of the economy. About half the contributors predict impending doom, total economic collapse, etc and the other half predict steady growth. If memory serves, there was a discussion a year or two ago (pre-pandemic) at which time I suggested we all check in again in about 2 years time to see if the economy had in fact collapsed or if things were going along smoothly.
Not sure if my timing is right, but the receipt of this news letter by one of my door suppliers seemed like a good opportunity to bring the topic up again. I posted the contents of the whole newsletter below, but this particular sentence caught my attention.
"We may be seeing the early days of an economic boom not seen since the end of WW2. "
I guess I'll have to wait a few more years for that economic collapse.
Here's that newsletter:
From: Rob Cabral
• Demand / Supply imbalance in Framing Lumber for housing construction has had extreme effects on softwood pricing and will continue to impact the hardwood market. The RISI Framing Lumber Composite Price which is a blend of different prices for products that are related to framing including studs and joists, has moved from $428 to $1044 this past week. That’s an increase of 144% in 12 months. That rapid increase is allowing Softwood mills to out pay hardwood mills for logging crews. One hardwood supplier I spoke to last week said he was told by one logging crew that they would not work for hardwood mills as long as the softwood mills were paying $400/m….consider that framing lumber composite index was $408 a year ago. Even with the impacts of the pandemic, Southern Yellow Pine harvest in 2020 topped 50 Billion board feet which is an all time record. Still not enough to meet demand.
• Shortages in MDF are forcing some Cabinet and millwork producers to revisit REAL WOOD. This is just starting to put further pressure on paint grade woods like Poplar and Paint Grade Maple. These pressure will increase in months to come. MDF production is not expected to catch up to demand any time soon. Below is look at What RISI is reporting in MDF prices…if you can get it at all….
• Stressed Offshore Supply Chains – As domestic producers struggle to manufacture cabinetry, moldings and millwork to meet residential housing demand, off shore producers are having the same supply issues. When you consider the cycle involved in sourcing north American hardwoods to ship to Asia and have products manufactured and shipped back, any supply interruption for offshore producers will have a longer term impact. Consider the additional issues around shortages of ocean containers and logistics and many domestic traders of imported wood products are wondering how they can manufacture those products domestically to bridge the shortfall. One comment from a division manager this week on our monthly inventory calls was “we need more poplar because off shore passage door manufacturers are late on deliveries and they now need to produce those doors domestically to fill their orders”.
What if other market demand comes on line? – trying to deal with the here and now but the reality is as vaccines are being distributed at some point, travel and hospitality, convention and store fixture industries will come back on line and perhaps with as much fury as residential housing. We may be seeing the early days of an economic boom not seen since the end of WW2.
Key Species Observations
• Poplar - After a couple of weeks of dry weather in the Carolinas and Virginias, meteorologists are calling for rain for most of this coming week. We saw some key supply partners step up this past week to ship delayed orders. Reality is that even if producers had a good month of logging, the pent up demand throughout North America would still keep shelves barely covered. We continue to push for more than our share and key partners are committing to give us that but the pie so limited right now, more than our share is 1-2 loads at a time where our needs go far beyond that. Divisions continue to share inventories and purchase order files to cover those most in need as orders come ready. Many issues on the demand side working against us as well.
Wow, I guy that sells lumber says lumber is hot! Shocking! And then the reasons why- weather and supply chains and factory shutdowns. When did those things ever equal a boom?
To be fair, there are some of us are in a boom. The other half is living of printed money from the government. Which is also the reason why there are some of us are in a boom. They have “printed” six trillion dollars in a year. That was the first 200+ years and even before last year it was a decade. Even as long ago as a year ago that was a decade. Enjoy it while it lasts. Prices going up does not mean a boom. It means inflation and its coming on hard and fast.
All I know is about 10% of the people are rolling in it. The rest are struggling hard. I know this because we’ve had to help more people in the last year than we have had to help in the last decade- little things like keeping the water and electricity on & food on the table.
Checked on how many are behind on their rent and mortgages and leases? What do you think happens when they can once again be evicted?
Boom or bust? Depends on where you are and where on the food chain you are.
Right now my shop is slammed.
8-10 months ago, I was pretty sure I was going to lose the whole works. What I think I'm seeing is a pent up demand from people not doing anything for the past year, and the floodgates have opened again.
I don't have much faith in the current regime, (I didn't have much in the last either), and I'm pretty concerned we're going to be paying $5 for a gallon of diesel again in the next couple of years. Probably toss another conflict in there for fun, then top it all off with some scary inflation. I don't see much good on the horizon, but I'm a woodworker, not an economist. Pessimism is what keeps us alive though.
The bailout stuff was unnecessary, but it saved my ass. Unnecessary, because it never should've happened in the first place. The states that did little for countermeasures have come out of covid in a better position than they went in. The juice wasn't worth the squeeze of the over reaction.
My concern is we will have hyperinflation, then we're just done. I'm taking on everything I can right now. I doubt this wave of work will last more than 12 months, so I'm not going to try hiring another body either. I'm encouraging my guys to save, and ride it while we've got it.
That newsletter reads as it should, written by individuals poised to ride the price gouge. All sorts of material are jumping on the price gouging bandwagon. Im in mid-atlantic, pretty much heartbeat of domestic hardwood, very close friends production logger and feeds the mill we pull from with 3-6 million board feet in production or dry at any given time. Nothing has changed here, nothing with regards to the weather, nothing with regards to demand/supply and there is no softwood here to corroborate "they would not work for hardwood mills as long as the softwood mills were paying $400/m".
Contractor I know in Vermont is seeing convoys of framing material heading south every single day.
This is all just the typical profiteering from the big boys at the top no different than any other and we will all keep slogging while they get richer fixing the system.
I also read it as an invitation to gouge, now is the time. OSB at $32/sheet looks a lot like gouge.
The letter sounds like it is more about Machiavellianism and less about millwork. As a business, you are likely doing as well or as badly as you are for reasons specific to your business, your clientele, and your location's economy.
Would you believe every salesman who came through your door? Do you get more work from clients because you tell them that you have lots of work?
I am no economist, but in my own microeconomy, I have had work when other local shops did not have any, and they have had work when I did not have any. No rhyme or reason to that condition. I could never accurately forecast my own economic trends, only possibly learn from them in hindsight, if at all.
I do know of shops that prepared for an upcoming "boom", only to be sitting on unused material and excessive manufacturing capability. When and if the work comes, then enjoy the economic upswing while it lasts.
Again, I'm no economist, but I think that the "economic boom" at the end of WWII was caused by a very specific "perfect storm" of economic factors, very few of which seem to apply to the current situation.
Try not to get too giddy.
"Again, I'm no economist, but I think that the economic boom" at the end of WWII was caused by a very specific "perfect storm" of economic factors, very few of which seem to apply to the current situation."
It was created by the baby boom for the same reason the housing boom now is being created by millennials starting families
Spare me the attempts at gaslighting
The boom will last for about 4 years
I suppose then that you and I should follow Rob Cabral's advice and start spending every dollar we have, and even dollars that we don't have, on materials, so that we can clean up during the coming "boom".
Economics, as a science, is most accurate when discussed in terms of history rather than prognostication. Even then, much as with everything else, not everyone can agree on the facts.
I'm sure that somewhere you have a chart that shows a direct correlation between millenials starting families and increased spending by them for custom cabinetry and millwork.
Or perhaps a chart that shows the millenials buying their woodworking from Amazon and Wayfair, and utilizing inexpensive stock cabinetry from the box stores for their kitchens and baths.
Or perhaps even another chart that shows how millenials are more experiential than materialistic, and would prefer to spend their money on quality vacations rather than quality woodworking.
I've lived through enough of these cycles to be wary of predictions for both good times and bad times. No gaslighting, believe what you want to believe, I'm just waiting for a "boom" to get here before calling it a "boom". In 2008, I had lots of work and wondered what the "economic crisis" was that everyone was talking about. Later the next year, I found out.
If it is "booming" where you are, then it has arrived for you; get it while you can. If you just think that it will "boom", then you may have to wait for the confluence of reality and wishful thinking, which may or may not happen.
One doesn't need to be an economist to know whether or not one is making money. But one does need to have the money in hand before one can count it. Even an economist will tell you that.
I would agree that the sales guys will be using this at their advantage to raise prices as much as they can. With material shortages and delayed product lead times its inevitable.
As far as a economic boom, I'm not so sure.. In my area just north of Chicago houses are selling within hours and they almost all need bathrooms and kitchens remodeled which is the majority of my customer base. We are are the busiest we have ever been right now, but do I think it will last forever? Absolutely not.
The younger people are leaving the city as fast as they can. They realize they don't want to be cramped in a condo with no where to go if another lockdown were to happen.
I often ask the delivery drivers how the other shops are doing in the area and the answer is the same its always been. Completely swamped or dead in the water.
Up until now I've seen little impact in shortages in cabinet construction materials compared to the rest of the construction industry. Little more of a wait time for some hardware components is about it. Plywood and hardwood has always been there, until yesterday, the plywood shelves are starting to dwindle and no real answers on when they're expecting more. So it looks like we've caught up to the home building industry.
My suppliers are stating to expect a 30% material price increase and some stuff very hard to get. This is not just directly from them. My rep has forwarded emails from their suppliers. The only thing we haven't been able to get so far is uv2 baltic birch. We don't use it very much but like to keep 5 sheets or so on hand. We have been buying units of 3/4 uv2 that we really don't have space to store. We have enough to last about 3 months but we are booked out farther than that. We normally have a truck deliver a unit once a week or so. It helps cash flow a lot to not keep a ton of extra material on hand. At this point with expected price increases coming it is cheaper to pay 4% interest on a credit line if you have to then to pay the 30% price. increase. I know that I am not helping matters any by doing this but I know if we can't get materials then production stops.
A little unrelated to woodworking but one of my main hobbies is shooting. I never tried to keep a ton of ammo on hand and now what little is out there is selling 4-5 times what it was a year ago. My hobby has completely stopped. I am not willing to shoot what I can't replace. I can't afford to pay those prices. I think if cabinet lumber and plywood start doubling in cost like framing material most small shops will not be able to stay open. We are already being beat down on price by large stock cabinet manufacturers. They will also get first pick at any materials that come available because they are buying by truck loads.
There is -without doubt- gamesmanship going on here from the very start of all this. Its not just "the market" and demand driving pricing.
I personally know several large GC's and mid sized builders that have been very outspoken about just prior to the Covid last winter and very early spring wholesale suppliers and vendors were probing them hard about why they werent stocking up on material for spring/summer because the mills were drowning in inventory they were not able to move (Q4-2019 and early Q1-2020. The INSTANT the covid issue began to bubble up,.. all that material that sitting and not moving mysteriously disappeared. Then the drama over demand began, and the pricing issues started, followed by lack of supply due to covid, and so on. But there was an immense over abundance of material they were begging to sell immediately pre-covid.
No conspiracy, no hokum, just some very smart, and lack of conscience, individuals who saw a clear potential to spike the market and did, and now continue to do it. And no different than any other of these nightmare pricing horrors that have happened numerous times in the past but there will be no wild race to ramp up production when you selling all you choose to at 3-4x with the same cost of goods other than a few pump jugs of hand sanitizer screwed to a post around the facility.
i.e. Ryan, one of our good customers is an FFL guy, very large distributor to law enforcement. He has been talking about ammo backorders for the last year in the hundreds of thousands of rounds quantities. That world is in the hell of both Covid and whatever political party is in office. Its a boondoggle where manufacturers of anything firearms and ammunition related are perpetually swamped.
Im only seeing about 10-15% bump in panel products in my world and just now starting to see a bit of sparse supply. Orders are having to be completed transferring materials from 2-3 branches. But its coming without a doubt. But I am not stocking up on any inventory that wont move in a month or two. Ive been burned playing that game before.
So the panic begins! I too am a shooting enthusiast. I have seen several good YouTube videos at bullet manufacturers. There’s no shortage of ammo, they are producing more now, than they ever have. The issue there is new a lot of new gun owners as a result of the defund the police movement, and people hoarding ammo, much like you are hoarding plywood. I went to order a half a lift of maple UV this week(for a job I actually have), someone bought all of my suppliers inventory and reserved half of the next batch they had coming in. My salesman told me that person was buying out of fear of supply. If we start acting irrationally, we are going to make this whole situation worse. I say buy what you need, when you need it, and stop stressing the supply chain. Your only making matters worse.
I think the futures market exacerbates the supply problem.
Another factor in the uneven economy is that the US has 140 million existing homes, they will always be cheaper than new homes because they were built at yesterdays prices.
We just had a similar situation as Matt pulling in 150 sheets of 3/4 birch for a job that is sold. It was a scrounge all branches to get a bit short of the count we ordered thankfully we had a small buffer.
It will undoubtedly devolve into the suppliers putting per-order limits on materials which is what the retail lumberyards have been doing for some time here. Sheetgoods (osb, CDX, etc) have had 40-90 sheet per order maximums for a while which are likely heavily swept aside for big builders/good customers as those wont put a dent in a ground up but none the less it will wind up happening.
Im not hearing about too many people hoarding or panic buying, to the contrary everyone I speak with seems to think prices will come down as things open back up and dont want to get stuck with a bunch of high dollar inventory they panic bought when the pendulum swings back. Im just always skeptical of how far back it will swing. The last time OSB flew from $7 up to 20+ it took a decade to come back to 11-12 because who wants to let go of those obscene margins. This time they got it up even higher so I'd say the cost of doing business pretty much will permanently go up for any user of affected goods.
And the super yachts will continue to roll out of the harbor.
Ryan, Matt. Look into NRL22 competition.
It's a hoot, and relatively cheap. (Even though I've got almost $6k wrapped up in a .22LR....)
I just got 10k rounds through a testing center. Just about the only way to get .22 ammo right now.