Quarterly Economic and Revenue Forecasts
UPDATED: November 20, 2017
This quarterly forecast includes our analysis of current economic conditions and our objective projections of future revenue for state trust funds and their beneficiaries.
For Economic and Revenue Forecasts 2013 and prior years, contact Office of Budget and Economics, PH: 360-902-1730; FAX: 360-902-1775; or email: firstname.lastname@example.org
November 20, 2017
Lumber and Log Prices. After peaking at an average or $376/mbf in 2014, west coast lumber prices fell to $317/mbf for 2015. They recovered slightly in 2016, averaging $341/mbf, mostly due to higher first quarter housing starts than in 2015. The increase in starts spiked lumber demand, catching lumber dealers off-guard, and pushed prices up from the end of the first quarter. Prices retreated toward the end of the year but did not fall to earlier lows. Lumber prices for 2017 have been significantly higher, averaging $406/mbf through September.
Through 2015 a `typical' DNR log averaged $521/mbf, falling from the $591/mbf average in 2014. The average price for 2016 was slightly higher at $536/mbf. The decline in 2015 was primarily due to the dramatic slowdown in demand from China and to an ample regional supply of both logs and lumber. Log prices have increased through 2017, primarily due to increased lumber demand; they've averaged $592/mbf through September. Prices are expected to remain high through early 2018.
Timber Sales Volume. Given current timber sales plans, the sales volume forecast for FY 18 is unchanged as 500 mmbf. Sales plans in outlying years have not changed, so absent a new sustainable harvest calculation, sales volume forecasts in those years also remain at 500 mmbf.
Timber Sales Prices. FY 17 auction prices averaged $345/mbf. To-date, auction prices for FY 18 have averaged $439 with around 20 percent of the forecast volumen sold. The sales price forecasts FY 18 remains at $363/mbf. The sales price forecasts for outlying years are also unchanged.
Timber Removal Volume and Prices. Accounting for changes to purchaser plans and the timing of contract expirations, FY 18 harvest volume expectations are lowered by 50 mmbf to 589 mmbf. This volume is being pushed out to FYs 19, 20, and 21, increasing them slightly to 597, 532, and 515 mmbf, respectively.
The average timber removal price for FY 18 is lowered to $318/mbf. Timber removal prices for FYs 19-21 are projected to be about $341 (+$2), $346 (-$5), and $343 (+$1) per mbf. These removal prices reflect changes in the removal timing.
Timber Revenue. The above changes to timber sales prices, sales volumes, and harvest timing have shifted projected revenue in all forecast years. Revenues for the 2017-2019 biennium are forecast to total $388 million, down around three percent ($11 million) from Septembers's forecast. Forecast revenues for the 2019-2021 biennium are increased by three percent ($10 million) to $361 million.
Uplands and Aquatic Lands Lease (Non-Timber) Revenues. In addition to revenue from timber removals on state-managed lands, DNR also generates sizable revenues from managing leases on uplands and aquatic lands.
The upland lease revenue forecast for FY 18 is increased by $1 million due to increases in revenue expectations for irrigated and orchard/vineyard leases and commercial property leases, which outweigh decreased expectations for other leases. Revenue forecasts for outlying years are unchanged.
Aquatic lease revenue expectations are reduced by a small amount for all forecast years due to continually lower expectations for water-dependent leases.
The FY 18 geoduck revenue is increased by $2 million to $22 million due to a higher planned sales volume than previously forecast. The revenue forecasts for the outlying years are unchanged.
Total Revenues. Total revenue for the 2017-2019 Biennium (FYs 18-19) are decreased by $8 million, to $533 million. Revenues for the 2019-2021 Biennium (FYs 20 and 21) are raised by $10 million to $502 million.
Notes to the Forecast. While the sales volume estimates are based on the best available internal planning data, they are subject to adjustments due to ongoing operational and policy issues. In particular, these issues are likely to affect sales volumes in outlying years, where the assumed sustainable harvest volume of 500 mmbf might be too high.
A continuing downside risk for the forecast is timber and lumber demand from China, which has already experienced a steep decline, could drop even further if the country's economic growth continues to slow down.
In previous forecasts, we noted that the expiration of the Softwood Lumber Agreement posed a major downside risk to the forecast: the expiration of tariffs might allow a flood of cheaper Canadian lumber into the U.S., suppressing domestic prices. This doesn't seem to have happened. Current expectations are that the countervailing duties imposed on Canadian lumber by the U.S. Department of Commerce will continue through 2017, though a deal is expected early in 2018. These duties will support higher prices.
Robust growth in U.S. residential improvements and housing construction would provide much needed, if unlikely, high-side potential. This has not yet occurred, despite strong employment growth for the last two years. Although housing demand has picked up there are still a number of impediments---persistently stringent lending standards, a continued tough labor market for younger workers, student loan debt, and general economic and social malaise---most of which are easing, but none of which show signs of completely abating just yet. Additionally, there are a number of supply side impediments constraining construction growth, primarily a lack of skilled labor and a lack of readily buildable land.
In late 2015, China again instituted a ban on geoduck imports from the Pacific Northwest due to paralytic shellfish poison (PSP) and arsenic concerns. However, once again, this didn't appear to impact prices or harvest activity. In late February 2016, the Washington Department of Health posted an article saying that China had lifted the ban and it listed the areas cleared for geoduck export to China. It is entirely possible that China could re-enact a more forceful ban on geoduck that would have a dramatic effect on geoduck prices, and therefore revenue.
Additionally, friction between geoduck purchasers and divers could disrupt the market, though these seem to have settled. As always in the geoduck fisheries, PSP closures create uncertainty around harvest volumes as well.
Finally, it is unclear how long U.S. economic growth can continue in the absence of coherent, growth-driven federal economic policies.
Archived Economic & Revenue Forecasts
Fiscal year 2017
Fiscal Year 2016
Fiscal Year 2015
Fiscal Year 2014
Office of Budget & Economics
1111 Washington St. SE
Olympia, WA 98504-7001
1111 Washington St. SE
Olympia, WA 98504-7001