Money rates crucial

By Harlan Hummel Secretary National Lumber & Building Material Dealers Association

I fOOf towards the coming year with mixed feelings I of apprehension and optimism concerning the future of the independent retail lumber dealer. The changes occurring "on the Hill" as the new adminstration moves in will obviously have a great impact on not only the retail lumber dealer, but on the entire country. As the l0lst Congress begins, there are several key factors which I feel will in part determine the success of retailers across the country. of the capital gains tax creates jobs and fosters which, when capital forma-

One important key to the independent lumber dealers' market in 1989 will be interest rates. Obviously, the key player to watch here will be the Federal Reserve Board. While it may appear that interest rates rise and fall merely at the whini of the Fed, the real culprit is inflation. The course that interest rates take in the new year will be crucial to independent retailers; obviously, if interest rates continu6 to climb, housing will become less affordable' If housing becomes less affordable, retail lumber dealers will suffer. veto.

(2) Revision lowered, tion.

It is extremely interesting that Secretary Baker is exploring a sliding scale capital gains tax based on how lo-ng investments are held. I believe this theory truly holds promise and would be an effective use of taxation as a hethod to set policy in the business community. For the retail environment in 1989, sluggish would be my description. Recently there have been several studies which t feel correctly represent that the public has a significantly greater amount of discretionary income than thev had in 1980. However, 1989 could well see the negative impacts ol

(l) Rising interest rates and inflation;

(2) Continued consumer credit growth which must abate to increase consumer liquidity;

(3) Erosions in consumer confidence that higher tax legislation fosters.

The other area which I believe will be addressed by Congress is the current w-ay9 of corporate mergers. Recentlv *e have seen over $60 billion in takeover activity. Congress has generally been willing to take on those issuds which do not directly impact their constituency. It is here that I believe Congress will act, through taxation

Story at a Glance

Interest rates crucial for independent dealers housing policies of the 101st Con' gress will be important. . repair & remodeling a growth area. material costs to rise.

Another key ingredient to the success of the independent lumber dbalei is the action that the 101st Congress takes to lessen the burden of the large Federal deficit' Higher taxes may indeed be one solution to the debt cri5is, if the funds are used in the appropriate manner. However, higher taxes are also likely to inhibit consumer spending. '

The housing policies of the 10lst Congress will be important. It would appear that the.move will be towards eniouraging new low to moderate income level housing projects, as well as the renovation of existing vacant buiiOings. While the current proposed policies are a positive mo-ve in the fight for the homeless, the bureaucratic "red tape" that may be involved could be too burden- some and costly for some independent lumber dealers.

It is clear that housing has become less affordable for the average American family. A sector of the population which has been notedly affected is the first time home buyer; homeownership has dropped close to 100/o for households in the 24-35 age group. Tax incentives for the first time home buyer will become an important issue for the industry in the coming year.

With the increased cost of housing comes the growth of a second and valuable market for lumber dealersrenovation and remodeling. This is clearly a growing opportunity for the independent dealer, and one which should not be overlooked.

It would seem to me that the cost of building materials will continue to rise, particularly in regards to dimension lumber. The recent disastrous forest fires, coupled with the proposed environmental programs to limit the depletion of certain federal forest land, could result in lower supply.

Although it is doubtful that we will see tremendous growth this year in the building material industry, the ingredients are there for a strong and steady year. The actions of the l0lst Congress willundoubtedly be critical to the overall success of the industry. However, with effective marketing strategies, financing, and quality service, the independent retail lumber dealer should continue to command a dominant share of the buildine materials market in 1989.