In This Issue
The Housing Update
Demographics & the Housing Industry
Alternative-Fuel Tax Credit
Accuracy of F2M Forecasts
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Although overall economic activity in the United States contracted during the past month, scattered signs of a slowing in the pace of decline are appearing. Nonetheless, we estimate another nine to 13 months of recession are likely. The dollar's value faces heightened risk from the U.S. government's fiscal and monetary policies. Substantially higher inflation, interest rates and commodity prices are distinct possibilities when global activity rebounds. However, domestic forest products manufacturers could leverage a weaker dollar into increased market share.

For a performance overview for Wood and Paper Products industries in March, click here.



Forest2Market will unveil Forest2Fuel in June, a newsletter focusing specifically on wood bioenergy industries and issues. Forest2Fuel will include in-depth analyses and reporting on critical trends, issues and news for wood bioenergy companies and their suppliers.

US Capitol Building  
According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, new residential sales dropped only 0.6 percent in March, though that is 30.6 percent below the March 2008 estimate. Still, the news could be much worse. Inventory levels dropped from an 11.2 month supply in February to a 10.7 month supply in March. For context, January's inventory level was 12.5 months. The median sales price for new homes was down $7,300 to $201,400, while average sales price was up slightly to $258,000.
Unstable Housing  
Changes in demographics in the United States may be working against an impending turnaround in the housing market. Since 1993, the inventory of excess housing units has climbed to approximately 2.4 million units, the highest level since 1970, according to the U.S. Census Bureau. At the same time, the number of household formations have been on a slight downward trend since 1970.  Two other demographic trends suggest that this negative trend will continue: an aging population and more and more people waiting until they are older to get married. As this trend continues, fewer and fewer houses will be needed.
Green Fuel
A controversy over pulp and paper companies taking advantage of the alternative fuel credit has been widely reported in local and national newspapers.  By mixing black liquor generated during the kraft paper process with fossil fuels, the companies became eligible for a $0.50 per gallon (of alternative fuel) tax credit. Criticisms of this have come from lawmakers, environmental groups and other pulp producing countries.
Family Forest
In March 2007, Forest2Market economists Mike Huebschmann and Tom Montzka warned that the inverted Treasury yield curve at that time was signaling a likely recession within four calendar quarters.
According to Huebschmann and Montzka, "The yield curve is the slope of the line between short- and long-term interest rates. Most of the time the yield curve has a positive slope because longer-term investments (e.g., two- to 30-year bonds) normally command higher interest rates than short-term investments (e.g., three- and six-month T-bills). However, every so often -- as was the case between late 2006 and early 2007 -- the yield curve inverts as investors foresee higher risk levels in the short run. Based on historical correlations, the risk of recession increases as the 10-year yield drops against the three-month yield." Three quarters later, in December of 2007, we were in recession.
Pete Stewart
Pete Stewart and Gordon Culbertson just got back from the International Biomass Conference in Oregon. Where are they off to next?

Gordon Culbertson will give a presentation entitled "Small Log and Fiber Valuation, Trends and Benchmarking" at the Forest Resources Association Western Region's Spring Meeting on May 12-13, 2009 in Vancouver, Washington.
Pete Stewart will be speaking about how the wood bioenergy industry will affect the work of State Foresters and Forest Management Chiefs at the Southern Group of State Foresters' Annual Meeting, June 14-15, in Wilmington, N.C.
Also, look for Pete's article, "A Crash Course: Supply-Shed Economics" in the first issue of Wood Bioenergy magazine, which will be out this month. Subscribe.
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