A Decline in '79

by Pete Niebling Western Manager North American Wholesale Lbr. Assn Portland. Or.

T T DOESN'T

I do our ego any good to review our past end-of-the-year projections which we pro- vided The Merchant Magazine.

In 1976, we underestimated housing starts by 12010. Our 1977 projections were too low by 160lo; and for the current year, we are too "conservative" by 200/0. For two reasons, we have gathered enough courage to try once more to see into the "crystal ball" for 1979.

One, we had a lot of company in underestimating 1978 housing activity.

Secondly, the federal government's actions taken November lst in relation to monetary restraint were expected to take place four to six months earlier by yours truly. The current year has truly been an "easy money" time and that always gives added impetus to housing.

So much for our excuses. How about 1979?

In late September, the association's housing projection for next year was 1.6 to 1.7 million conventional units. We were thinking in terms of about a 150/o decline based on continued demand for homes by buyers, while recognizing that the housing industry could not escape the changing money markets.

Following President Carter's actions on November I st, we revised our thinking to 1.4 to 1.5 million starts, i.e. the "new ballgame" resulted in a 200,000 unit revision downwards.

Perhaps equally important is our revised thinking about wood products markets other than housing. Although our September forecast indicated a 150/o decline in housing, we felt that consumption of products would only decline half that much. The thought was that industrials would remain relatively strong through next year. This thinking also requires revision. Within days of the government's actions, we received reports of dramatic slowdowns in mobile/modular manufacturing and in softwood furniture manufacturing. This negative news seems entirely centered with the smaller manufacturer. The high interest rates are affecting his thinking. Thus, 1979 consumption percentage decline will be closer to the housing decline than previously thought. what they are if the government backs up their rhetoric with action.

On the plus side, there continues a strong underlying demand for housins. To us this means three things.

(1) a decline in struction activity term.

In our bi-monthly marketplace analysis in November, we found a majority opinion among wholesalers (600/o) that voluntary controls won't work. At the same time. a substantial number (230lo) also feel we won't have mandatory controls in 1979. Our thought is that if the controls are really semivoluntory, then maybe they will work and further regulation will not be forthcoming.

Again, it's up to the government and our elected leaders. housing conmay be short

(2)if you believe that interest rates (including mortgage interest rates) will peak in early 1979, then the consumer will only delay his purchase a few months until rates come down.

(3) momentum will help to ease the transition from great to moderate activity in our industry.

Regionally, the business picture may vary. Whatever the decline in

Story at a Glance

1979: An average year

by Howard C.A. Hunter Director, sales & marketing Lumber & Plywood Div. St. Regis Paper Co.

197 gil:' make sure Yoluntary controls work. housing is, it will likely be less in the western states than in other parts of the country. California is still humming along; Seattle is booming; and there is every reason to believe that the Mountain States will be fairly active next year.

Finally, will our fight against inflation succeed? What about Carter's voluntary controls? Putting the brakes on money is one step. A second and very necessary step is spending restraint by the bureaucrats and politicians. If they recognize that they are a major part of the problem, then we may finally be on the road to a steadier economy.

Regarding controls, there is candid admission that the government would really like to have a word that could be utilized to describe the current controls as halfway between voluntary and mandatory. That's an average year in our opinion. We do not see the housing market following the degree of fluctuation of past cycles. Certainly 1979 will be an off year as federal money policies continue to dry uP mortgage funds.

But the 1979 "slump" will likely be spread over the last two quarters of '79 and the first half of '80 and be less severe than in the past.

Canadian production in studs and dimension will be a major factor in establishing market prices. The dollar ratio will continue to

Story at a Glance

An average year. . . mid '79-to-mid '8O slumP will be less seYere than years past... Canadian production a maior factor in setting prices. trucks will get more rail business.

force Canadian volumes into U.S. markets.

We see the large distribution yards growing in number and size. Conversion of contractors to the all-weather wood foundation and the Plenum system in competition with slab construction will increase market penetration of wood prod ucts.

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Rail transportation will continue to lose ground to trucking of wood products as rates climb and service deteriorates.

Despite lesser demand, prices of lumber and plywood will continue to rise next year because of increases of raw materials cost and labor.