Slow time for growth

FIE economy of 1994 will most likely be mrrch like 193: one of modest growth. Although lower interest rates appear to have finally encouraged a higher level of economic growth in the second half of 1993, the acceleration is unlikely to continue into 1994.

The reasons are many: defense cuts, tax increases for the wealthy, ctrporate resruc0lring, office consfucdon overhang, slow economic growth for some major fueign trading parmers, and concerns over health care restructuring. Together, qhgse danpening forces should hold real GDP growrh to 2.5Vo in1994.

But modest growth is not all that bad. Such growth keeps indusfies from pushing to capacity limits and helps to hold down inflation. In addition to slow growth, current Federal Reserve Board policy and stable curmodity prioes will probably cause inflation to fall from 3.0% in 1993 to 2.57o la 2.8Vo in 1994. In orn, lower inflation should help interest rates fall further. After rising in the last few months of 1993, the yield on the 30-year bond could fall to 5.5Vo in 1994. At the short end of the yield curve, slow economic growth and low inflation provides the ingredients of unchanging Federal Reserve Board policy. Consequently, the prime rate could remain at 6.0% and the 3month Treasury bill could hover from 3.A0% to 3.l5%o over the entire year.

Lower interest rat€s encourage growth in the housing market, but demographics will keep housing from hitting the levels of the 1980s. Specifically, trars factors that bolstered housing growth in the 1980s will not be as strong in the 1990s: the number of new wcking age adults and the participation rate of women in the workforce.

In the 1970s and 1980s, Oe baby boom generation entered the labor force and increased the demand for housrng By contrast" there are fewer young adults today; in 1980 there wqe l2.l million adults age 18-20 and in 1990 that sarne goup totaled 10.8 million. The second factor that &ove labor force growth in the last two decades and also increased the demand for housing was tbe increasing percentage of women in the labor force. The ferrale participuion rate rose from 43.3Vo in 1970 ro 5l.5%o in 1980 and 57.3Vo n 190. However, this rate is expected to increase only to 62Voby the year 2000.

6o/o Single Unit Gain

(Continued from page I 2)

In effect, the growth expected during the fint stage of a constmction recovery is being stretched over three years. The regional pattem for 1994 is expected ro be similar to what is taking place this year. The srongest gain will be shown by the South Atlantic, followed by South Crntral, the Northeast and the Midwest. Unfortunately, the West will still be harpered by the disressed Southem California economy.

Strong demographic support is present for the single fanily home market, so some of the deferred deunnd from the 1990-91 downturn and the incomplete recovery in 1992-93 should lead to modest growth in 1994. With inflation low, mortgage rates are expected to remain close

0o current levels at least throrgh mid-194.

Consumer confidence is a bugher ca[ but at least some of tbe uncertainty surrounding tbe Clinon budget package was removed with its passage. The mortgage revenue bond provision of the Clinon program shorild help bring money at below-martet rates to moderate income homebuyers. While the credit cmnci remains an in@iment to developen, a r€oent survey by the Federal Reserve of 60 banks showed thrt some have eased standrds for loans to small businesses - ertainly a hopeful cbange from a year ago.

Th" 35 1e J4-yea-old group is likely to have tbe greareqt impact on home buyng. Because the first balf of tbe 1990s will see this group grow by more tban l0 million persons, tbe demographic fundamenals of tbe single hmily market will stay strong. Furthermore, Oe Census Bureau has raised its population eslimates to take into account greater growth in immigration, boosting projections for housing demand in the yeas ahead.

A toral of 175,000 unirs projected this year will be rhe frst advance since 1986 for the depressed multifamily bousing sector. Gven the new focus of tbe Clinton A0ministration, some support frrom tax sedits for low inme rental housing can be expected. A low 9% incrcase of 190,000 units can be exoected in 194.

Contract value of single family houses to be built in tf!! is projected ro be $116,225 million, up 9% from 193. Muldfamily housing contract value will be $12275 millisl, up 10% ftom 193. Total contrrct value fa residential buildings will be $128,500 miUioq an increase of 9%from1993.

Positive About 1994

(Continrcdfiompagc 9) for the upcoming yqrs, we have smre v€ry aggressi\€ and strategic changes planned in the forur of eipan&d orstomer services, new products, new markets and physical and geographical expansion. This type of visionary aproach and initiative will be required in tbe fuurrc of ail disributon if they're to be successfirl.

Alrhoug! we look forward to very pcitive results in the disribution of building materials, wC also soe some very major challenges. Expansion in technology, matets and new products will require disfibutors to look for additirxal gapital to fimd these invesurents. The challenge will be to bdance the invesunent needed to capue growth in menning markets with that needed to improve value-added servioes. To ensure an adequate renlln on their investment, distributors will need to achieve higb€r p'roductivity.

As we look forward, there will be closer wcking relationships between the custmer base and distribution with advancements in technology, electronic data interchange and UPC bar coding. These improvements will provide the entire industry real-time inforrration and cct--savings in tbe future.

-A1ot!gr chalfenge for disributors will be improving relationships with tbeir souoes of suprply. f.or distributtrs that market wood products, closer supplier relationships will be critical to ensure a steady flow of materials. If housing sttrts meet their 1994 projections of 1.3-1.4 nillion units, there will be increased pressure on timber sup plies and wood product availability and pricing *ill again be dramatically affected.

Raw material will continue to affect product availabiliqy. With large log invenlories decreasing, the transition from solid-sawn lunber to engineered prducs is rceler4ing. 4q a result" engineered products are a key emphasis for the'90s in our distribution business.