lmproved California market in 1982

By Tom Graves Vice President & Economist Security Pacific National Bank Los Angeles, Ca.

aFfALIFORNIA should experi- Yence more rapid economic growth in the second half of 1982 after rather sluggish performance this year and the first two quarters of next.

prisingly low 7.190 this year but is expected to exceed eight percent during 1982. Employment (in terms of the nonagricultural wage and salary employment) should rise about 1.590 in l98l and should show virtually no will ex- growth in 1982.

The gross state product pand at about a five percent annual rate during the fourth quarter of the coming year, more than double the growth rate this year. Although the gross state product increased two percent in 1981, virtually all of that growth occurred during the first quarter while the second, third and fourth periods posted declining levels of real activity.

The weak labor markets illustrate the breadth of the economy's subdued performance. Personal income will expand by only 12 to l0o/0, respectively, in both l98l and 1982. These figures compare with a I 3 9o increase in 1980. California's unemployment rate averaged a sur-

Consumer spending held up quite well in California during the first two quarters of l98l and then slowed

Story at a Glance

during the third quarter. The bank estimates that taxable sales volume will post a 140/o gain for all of 1981. That rate will decline to a depressed 7.490 pace next year.

On the brighter side, this weakness is likely to put downward pressure on consumer prices from an alarmingly highrateof increaseof 15.6s/o in 1980 to a projected 8.490 by 1982.

As might be expected, the pervasive weakness in the California economy is especially pronounced in the homebuilding industry. Indeed, l98l construction levels will hit the record books at a level far below expectations. Residential building activity is anticipated at I19,000 units, almost l89o below 1980's already depressed performance.

Again, this weakness in both the state and national economies is expected to relieve upward pressure on

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Fremont specializes in a large inventory of high quality Douglas fir boards, dimension, long lengths and timbers shipped from select mills in British Columbia, Oregon and Califlornia. We &r€ coostantly adding to our selection of western red cedar, pine, hemlock and white fir. Other species and specialty items are inventoried and included in our weekly flyer sent to all Fremont customers.

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2200 No. Glassell, Orange, Calif. 92667 (714) 637-s350 . (213) 860.7791

164 Healdsburg Ave., Healdsburg, Calif. 95448 (707) 433.3313

(Continued from page 35) interest rates during the last quarter of l98l and the first half of 1982. The improving interest rate environment should bring some relief to the homebuilding industry with housing production increasing to nearly 150,000 units for 1982.

Much of the stability that the nonresidential sector has enjoyed during this volatile and capital-short period can be attributed to funds committed prior to the tight credit environment.

Commercial construction will continue to dominate the nonresidential building sector throughout 1982. The current building boom started in response to low vacancy rates in many metropolitan areas. The alarm is now being sounded that unless curbed, this boom may result in excess office space. This problem may be avoided as commercial building dollar volume is expected to show only a I 5 9o gain in I 982 over I 98 I

The demand for warehouse and distribution facilities in California, coupled with accelerated business depreciation, is expected to stimulate industrial construction. Permit valuations will rise an anticipated 2oa/o by year-end I 98 I over I 980 and gain another 7-l0s/o in 1982.

As often happens during troubled financial times when high interest rates and a sluggish economy deter new building projects, the volume of alterations and additions should continue strong through 1982.

Har Dwood Plywood

(Continued J'rom page 32) more contemporary styles to meet the imported cabinet competition. The cabinet industry represents a large market for stock panel and cutto-size hardwood plywood.

Another important market for some hardwood plywood manufacturers is door skins. The National Woodwork Manufacturers Association is estimating that door sales in l98l will be at least l59o less than 1980. Each flush door uses two pieces of 3 / 8", 3-ply hardwood plywood or other panel material.

In the last several years, wood has made a strong comeback for flooring, and laminated wood flooring has also seen an increase in demand.

Cut-to-size hardwood plywood manufacturers are principally supplying the furniture industry with drawer fronts, sides, and backs, laminated bed rails. table and desk tops, table rims, and other parts. Shipments and new orders of wood and upholstered household furniture improved somewhat in l98l over 1980, a poor year, according to statistics developed by the National Association of Furniture Manufacturers.

The staggering cost of homes and home financing affects the market for hardwood plywood in several ways. A townhouse or condo or smaller house uses much less building materials and furniture than the detached single-family home built in the past. There is also less disposable income remaining after paying higher mortgage payments l98l marked HPMA's 60th year of service to the manufacturers of hardwood plywood and veneer. As the economy recovers and housing units increase to 2 million built annually, a figure indicated as our housing needs during the mid-1980s, the hardwood plywood industry should participate in an improved market.

Imports represent 7590 of total U.S. consumption of hardwood plywood. The large jump in hardwood plywood import prices continues to reflect the higher cost of hardwood logs.

1982 Houslng lmprovement

Predicting that construction contracts in 1982 will total $169.4 billion, l59o more than this year's anticipated level of $147.8 billion, a leading industry economist has cautioned that housing would play a pivotal role in this "improvement" as gains in private nonresidential building and declines in publicly financed construction cancel each other out.

The 1982 construction market forecast, delivered by George A. Christie, McGraw-Hill Information Systems Co. vice president and chief economist, says that the revival of residential building will dominate the construction sector through much of 1982.

Christie believes that the excessively high interest rates that have been so damaging to the housing market in l98l will not prevail much longer. "The combination of a sluggish economy through mid-1982 that will limit credit demands, and a partial accommodation of monetary policy to the Administration's budgetary squeeze, will allow a recovery of housing as interest rates recede," he said. "Of course, the strength of housing's response to an expected decline in interest rates from their lofty peaks is something of a guessing game," he admitted. "But even a modest decline of mortgage rates should bring next year's housing starts within the range of 1.4 million to 1.5 million dwelling units."

The economist expects residential construction will come to $82.8 billion, a 33s/o increase over this year's $62.1 billion; nonresidential building contracts will reach $57.1 billion next year, a one percent gain over this year's estimated $56.3 billion; and nonbuilding construction, expected to total $29.4 billion this year, will increase only one percent to $29.5 billion.

He set a low limit for the potential expansion of the entire nonresidential building category, due to the probability that the office building boom had reached its peak in 1981.

To Christie, industrial building provides the construction industry with the best opportunity for expan- sion, "if not in 1982, then storting in 1982 and developing more fully in 1983." He pointed to the Reagan Administration's attempts to create a favorable environment for business capital spending.

"However, late in 1982, as the present slack in manufacturing is taken up by rising economic activi ty, the investment mix will begin to shift to a higher proportion of buildings in order to provide the means for further expansion," said Christie.

Much of the deferred construction potential of the early 1980s can eventually be realized, he feels.

Annual Hardwood Course

California Lumber Inspection Service will hold their fifth annual hardwood short-course during the first full week of Jan., 1982.

The clinic will be held in Santa Clara, Ca. Class is limited to 30 persons on a first come first serve basis. For further information, please call (,108) 294-1682 or write CLIS' P.O.6989, San Jose, Ca.95150.

The heart of any business is its people. While we can't show you all of ours, these are a few of the individuals responsible for bringing our customers quality hardwoods for over 50 years. Some have retired. Others have passed on. Yet, there are new generations to uphold the Penberthy tradition for providing products "a cut above the norm." lt is only by attracting these dedicated employees that we have been able to bring you the most exotic woods. the best grades and the most economical prices from the far corners of the world. They have helped build Penberthy into the only wholesaler in the West with over 1 .l million feet of hardwoods and softwoods in dozens of different species, a company with its own dry kiln facilities, a complete planing mill and some of the most modern handling techniques to be found anywhere. When you think of hardwoods, think of Penberthy, where giving you the most for your money is taken as a personal responsibility. Penberthy Lumber Company, 5800 South Boyle Avenue, Los Angeles, CA 90058. (213) 583-451 1.

Western Lumber

(Continued from page l5) crease to be used in residential construction. Single-family starts should account for 64s/o of the total conventional starts, as opposed to 6590 during 1981. Single-family units took 7lslo in recent years.

While mobile homes areexpected to be up I 190 from' 8l figures,that increase will not make up for the single percentage drop that single-family units will take as a proportion of total starts. That is because mobile homes use only about 3,000 b.f. per unit-significantly less than singlefamily homes do. All uses of lumber should be up just marginally in 1982, however.

About 13 billion b.f. will be shipped from the Western region during 1982. That's about one billion more feet, or seven percent better than shipments during 1981. While it's hardly a full recuperative period, during these times the industry will take any improvements.

Inventories at this year's end should total 2.1 billion b.f. Under normal circumstances, that would be a low level. Under present economic conditions, it can be called moderately high.

We look to next year's production to barely outpace consumption, leaving us with slightly higher inventory levels at the end of 1982, to meet what hopefully will be a healthier demand outlook in 1983.

We are hopeful that we'll see the beginning of better times around the start of the second half of 1982.

PLYWOOD tN 1982

(Continued from page I4) would logically be down lTVz percent. In fact, the nonhousing markets have responded so well to joint industry-APA promotion efforts that the drop in total industry demand has been held to l2qo.

The value of the long-established industry drive for market diversification has never been more clearly demonstrated. Our great challenge for 1982 is to maintain a broad-based promotional effort in the face of continued inflationary pressures impacting APA budgets and services.

One of the recommended special emphasis areas in planned APA 1982 promotion, the increasingly valuable over-the-counter sector, will rely for its future growth on continued cooperation between dealers and APA in the training of yard personnel, the provision of attractive merchandising aids, and further development of promising opportunities in residential and commercial remodeling'

The importance of close plywood industry liaison with dealers, distributors and their national and regional associations is underlined by their primary role in the distribution chain. Dealers accounted for 9690 of all plywood sold to homeowners in 1980.

Continuing opportunities in markets like do-it-yourself and industrial have been particularly valuable for western producers, who make about 70s/o of all sanded grades.

Based on a slow housing recovery at the pace I have indicated, demand for plywood and other structural panels could be 18 billion sq. ft. in 1982 compared to perhaps 17.4 billion feet in l98l (3/8-inch basis).

In summation, we expect 1982 will be the slow mending year we looked for in 1981, and 1983 should be the year for the plywood industry and its customers to return to real health.