General Economics

By Tim Llndgren President United Wholesale Lumber Co. Montebello. Ca.

a 5 a newcom.Cl.er to the industry, I will concentrate my observations on projections that relate to the total U. S. economy for the coming year.

These observations will then be related to the possible effect they may have on the lumber market.

For possibly the first time in the U.S. economy we are entering into a period when economic activity will be supply restricted, rather than demand restricted. In short, our capacity to supply basic raw materials and processing facilities cannot keep pace with the potential demand generated at home and abroad. This phenomenon is dramatically demonstrated daily in newspaper headlines.

Story at a Glance

A good year with demand being more selective and requiring a more refined merchandising . long upward demand trend for lumber as a basic commodity.

The second major consideration which will continue to have immediate and extreme effects on economic activity is the maze of political and socio-economic changes taking place around us. All of the basic economic indicators appear to be subject to extremely volatile fluctuations, based upon daily happenings in the political and social arena.

At a recent forecasting seminar, a well-known economist prefaced his well prepared speech by stating that he had been compelled to rewrite the entire speech on his way over from the airport, due to news items he had heard that morning. This comment sums up well the volatility of current economic conditions. In spite of the many diverse opinions and apparent confusion in the forecasting field, certain basic comments and intuitions are heard with regularity. Among these are the following:

I The current energy crisis, particularly petroleum shortages will have much more effect than originally anticipated.

I Unemployment will move upward. but will remain near the 57o levels.

I Interest rates will temporarily ease off, but will not return to previous levels. Residential mortgage rates will float between 8 and 97o during 1974.

I Corporate profits will be strong in the fourth quarter of 1973, but will level off in 1974.

I Current industrial inventory levels are relatively low and will build during the first quarter of 1974.

I Inflationary and price pressures are becoming more extreme with a possible wage explosion taking place during the year..

I Continued and increased attempts at controlled economy and ecology.

I Growth in gross national products will slow down over 1973 highs to approximately 37o.

In general, these variables add up to a continued strong economy, slightly below 1973levels. It must be remembered that this optimism must be tempered by the extreme volatility of the total national situation.

This generally healthy economy should lead to a basically sound demand for lumber. One word of caution however, in this regardour old standby indicator "housing starts" will be under pressure. There are two factors which will tend to reduce new activity on new residential construction. First of all it is well to keep in mind tlle ratio of completions to starts. In 1973, starts will exceed completion by 400,000 units, this residual will carry over into 1974. The second area of concern is of course the money market which will continue to inhibit the residential developer and home buyer.

In summary, I would conclude that 1974 will not be the boom year experienced during 1973. It will, however, be a good year with demand being more selective requiring more refined merchandising. The

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