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.
Forest2Market has recently applied a modest upward revision to our housing-start forecast. The reasons for this revision are two-fold: First, we have concluded that 500,000 total units constitutes a "baseline" or "background" rate of building activity that occurs naturally in the U.S. economy. (We had previously speculated starts could fall and remain below that threshold.) The second reason relates to the legal issues surrounding the "foreclosure fraud" cases now in court. We think some homebuyers will exhibit a preference to purchase new homes with unencumbered titles.
Movement may already be headed in that direction. New home sales jumped 17.5 percent in December, to an annualized rate of 329,000 units (Table 1). While significantly better than October and November, the number of new homes sold was down 7.6 percent year over year. Inventory fell from 8.4 months in November to 6.9 in December, a 17.9 percent improvement. Inventory is 11.5 percent lower than it was December 2009. Both median and average sales prices improved in December, with median price coming in at $241,500 and average price at $291,40.
Production at southern solid wood mills increased 4.8% in 2010. Compared to steep drops in 2009, this modest growth marks the beginning of a rebound. Forest2Market expects 2011 will bring modest improvement for sawmills and plywood mills as well, a result of stronger residential construction.
Lumber mills increased production by 8.8% in 2010, despite seven mill closures. Four plywood mills closed, reducing production volume by 3.2%. Delivered sawlog and plylog prices increased $1.53/ton over 2009 levels, according to Forest2Market's delivered price service. Increased log size contributed nearly half of that increase. A rise in standing timber prices accounted for $0.44/ton. Most of the remaining increase reflects higher diesel prices. Haul distances remained flat.
Timberland owners in the South struggled in 2010, as low demand for sawtimber and prices below historical norms forced them to delay sawtimber sales beyond the timeframes set in their timberland management plans. Landowners with smaller sized timber took advantage of pulpwood markets, however, thinning timber tracts or cutting pulpwood to meet increased demand from pulp and paper mills.
Demand for pulpwood was noticeably higher in 2010. According to Forest2Market's delivered price data, pulp and paper mills purchased an additional 5 million tons of pine pulpwood and chips. This is 4.3% higher than 2009's volume. Hardwood pulpwood and chip purchases increased 2 million tons, an increase of 5.4% year over year.
Forest2Market is pleased to announce that Madison Wood Preservers, Inc. has joined Mill2Market, the company's weekly lumber price report. One of the most respected wood preservers in the country, Madison is a major purchaser of southern yellow pine lumber. The company will report 100 percent of its sales, including volume and price by grade and dimension, to Forest2Market. Their data will then be aggregated with data from all other subscribers and reported back to participants via the weekly Mill2Market report.
"Madison is a valuable addition to our service," said Bill Nocerino, Manager of Forest2Market's Lumber Division. "A company with their reach and reputation helps us to further establish our report in the market. Mill2Market is already the most valuable lumber price report on the market, and with every new subscriber we move even closer to being the industry standard for lumber pricing."