Recent Economic Indicators for the Wood and Paper Products Industry

The Institute for Supply Management (ISM) reported that manufacturing expanded in both December 2010 and January 2011. December's index reading was 57.0, which was up slightly from November. January's bump was much larger--60.8--reflecting the fastest pace of expansion in seven years. According to the index, manufacturing has expanded for 18 straight months. 

About the December report, Norbert Ore, the chair of the ISM's Manufacturing Business Survey Committee, said that despite a “significant recovery for much of the manufacturing sector in 2010, . . . those industries tied primarily to housing continue to struggle. Additionally, manufacturers that export have benefitted from both global demand and the weaker dollar. December’s strong readings in new orders and production, combined with positive comments from the panel, should create momentum as we go into the first quarter of 2011.” January's increase demonstrates this momentum.

Wood Products reported no change in December, while the only real bright spots for Paper Products involved rising employment, lower inventories and slowing imports. Real Estate and Construction both shared in service-sector expansion, while Ag & Forestry contracted.

Even with the positive news delivered with December’s report, two aspects of the reports were sobering: First, employment grew at a slower pace in both the manufacturing and service sectors. Second, input prices increased noticeably. Price indices rose 3.0 percentage points for manufacturers and 6.8 percent for service industries; service-industry costs are now at their highest level since September 2008. Fuel, transportation costs, paper and caustic soda were among the relevant commodities up in price; no relevant commodities were down in price. Coated groundwood was described as in short supply.

Fitch Ratings, in 2011 Outlook: Decelerating Growth in Paper and Packaging; Stasis in Wood Products, believes that credit implications should remain stable for the paper and forest sector in 2011, though meaningful growth will be further down the road. “Digital images on iPhones, iPads and Kindles will decelerate the growth in paper shipments in a healing domestic economy while poor housing starts will continue to negatively affect wood product companies.” Read the Fitch Ratings report.