Economic Outlook - January 2009

The U.S. economy, now officially in recession, continues to act the part. Manufacturing activity and consumer spending declined noticeably during November, while companies shed jobs at the fastest pace in three decades. The U.S. dollar was supported by safe-haven buying, and remained strong against other currencies. This exacerbated a fall-off in exports and lowered crude oil prices. Although the housing market’s funk deepened, affordability is improving to levels not seen in decades. Nonetheless, we expect only limited recovery in housing until employment increases.

November saw an increase in the number of shuttered plants and curtailments, as the depth of the recession became clearer. The curtailments could deepen in coming months, though, if Fitch Ratings’ prediction that “the financial wherewithal of the paper and forest products industry is about to be tested as never before” comes to pass.

Exports, which had been providing a backstop of sorts during the past year (especially for paper manufacturers), seem to be drying up. Year-over-year changes in exports of wood pulp, paper and paperboard experienced a substantial monthly decline in September (–11.6 percent). Exports of softwood lumber also fell, down 1.5 percent, according to the Western Wood Products Association’s Export Report. Because of the unexpected strength of the dollar, this is unlikely to improve in the near term.

Read more about the Forest2Market Economic Outlook.