Quarterly Economic and Revenue Forecasts
UPDATED: December 22, 2021
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 from 2013 and prior years, contact the Office of Budget and Economics by phone at 360-902-1730 or by email at firstname.lastname@example.org.
The COVID-19 pandemic has significantly altered the economic landscape. It has affected almost every aspect of economic life, from consumer behavior and purchasing decisions to production and supply chain operations. And although the threat of large-scale COVID-19 lock-downs no longer completely overshadow all of the normal constituent parts of the forecast, the ongoing pandemic is still creating significant uncertainty across the economy.
Earlier in the year, we were optimistic that the U.S. would be approaching herd immunity or something like it by mid-2021 and that the pandemic’s economic impact would largely be a problem external to the U.S., though it would have still had implications and risks for the U.S. economy2. At that time, extremely effective vaccines were becoming more widely available and cases were falling from their January peaks. However, because of resistance to vaccination, waning vaccine efficacy over time and the emergence of more contagious COVID-19 variants, another wave of infections peaked in September, and cases are again rising.
More contagious variants mean that a higher proportion of the population must be immunized (either through vaccination or from infection) to reach a herd immunity. As of writing, 196 million people (59 percent of the population) have been fully vaccinated3,4. Additionally, an estimated 146 million people in the U.S. have been infected, which appears to confer meaningful immunity, though it may be less effective than vaccination5.
With the overlap between these two groups, and with waning immunity, it’s unclear how many U.S. residents have some sort of immunity and, ultimately, it is unclear if or when the U.S. will reach some version of herd immunity. Currently, case rates are going up across the country after having fallen from an average of over 162,000 cases per day in September to a low of around 69,000 cases per day in October. There doesn’t appear to be any consensus from experts on the likely trajectory of the pandemic in the U.S., though numerous experts are warning of a large winter wave. Additionally, it doesn’t seem like there is much risk of more stay-at-home orders in the U.S., either because there is less risk of massive outbreaks or because of constraints from the political environment.
From the perspective of the economy, assuming there are no more shutdowns, it’s not clear how much herd immunity would matter in the short-to-medium term. Many of the larger economic effects of the pandemic are already working their way through the economy — including chip shortages, supply chain bottlenecks, altered consumer behavior from services spending to more goods spending, etc. As an example of how things might not change, car manufacturing delays due to chip shortages emerged in late 2020, leading to constrained car supplies and extraordinary prices6. Even if COVID-19 were to disappear from the U.S., the chip shortage would not end immediately and it would still take some time for car manufacturing to return to normal.
Taken all together, the forecast is now built with the expectation that the pandemic will continue indefinitely, but this is unlikely to seriously affect DNR revenue. DNR revenue comes predominantly from timber, with some from agriculture and other uplands leases as well. Timber prices are largely driven by the demand coming from housing markets and agricultural revenue is largely driven by the prices of agricultural products. These will be discussed in their respective sections of the forecast — but in short, unless there is a massive change in the nature of the pandemic, they are likely to be largely untouched.
Even without clear effects such as stay-at-home orders, the ongoing pandemic will probably still have some effect on the economy, though it will likely be more insidious and more difficulty to quantify. The repercussions could include things such as:
Reduced demand for services or fluctuations in demand for different types of goods because many people are still wary of public spaces.
Disruptions to shipping, both international and domestic, because of overrun ports and outbreaks in port cities, as happened at the Ningbo-Zhoushan, the worlds third largest container port, in mid-August 7.
Reduced economic output across the economy due to outbreaks among labor in other sectors.
Reduced labor availability due to school closures or availability.
Impaired productivity growth due to long COVID (ongoing symptoms that can severely affect normal life after the illness) affecting a meaningful portion of the workforce — current estimates are that about 11 million people in the U.S., or about 30 percent of those infected, are affected by long COVID 8.
To summarize, the assumptions underlying this forecast are:
There will be no more stay-at-home orders or significant limitations on economic activity by governments in the U.S.
Successive waves of COVID-19 will not cause major disruptions to DNR revenue streams, which are relatively insulated from the direct effects of COVID-19
Even if COVID-19 new-infections drop substantially, it will not create a meaningful boost in economic activity
Having written all that, the COVID-19 pandemic is still a wild card and significantly increases the potential risks and volatility of DNR revenue. This doesn’t affect the point forecasts provided, but it does increase the range of potential and equally likely outcomes.
Lumber and Log Prices. Lumber prices plummeted to $414/mbf in August, after peaking at around $1,600/mbf in May (West Coast standard or better 2x4, Douglas-fir/Hemlock). However, these have rebounded to $641/mbf in November. Demand remains high and extreme weather shutting down production in British Columbia has caused prices to spike from what they were in October. Currently, the cash price on the Chicago Merchantile Exchange is over $1000/mbf. It’s unclear if prices will continue to increase as they did in 2020. However, even if they fall from the current spike, prices are expected to remain relatively high through the first quarter of 2022.
The high lumber prices pulled up log prices, with the price of a "typical" DNR log rising from a low of $498/mbf in April 2020 to peak at $718/mbf in April 2021. These are very high historically, but interestingly, still below the highs of early 2018. Since April, log prices have softened, falling to $681/mbf in November. This is, notably, still higher than the prices of early 2020.
Early in the pandemic, we, and others, expected the pandemic to undermine house prices and demand, and, consequently, the demand for lumber. This widely shared expectation, as well as actual COVID-19 outbreaks and restrictions, resulted in slower production at mills, furloughs, layoffs, and some mill closures. However, extremely low interest rates spurred housing demand and starts, and remodeling and renovation demand spiked during stay-at-home orders. The result was a sharp drop in supply while strong demand remained, making lumber prices rocket up and pushing up log prices. These high prices continued into the summer as wood manufacturers weren’t able to sufficiently expand output due to supply chain and labor supply difficulties.
Timber Sales Volume. DNR currently plans to offer around 590 mmbf for sale in FY 22. However, around 60 mmbf of that is at risk of not being brought to auction. Additionally, through September, although stumpage prices remained relatively elevated, stumpage demand appears to have softened, with around 10 percent of sales passed in.
Given the weaker recent lumber prices, softening timber prices, and apparent weakness in stumpage demand, the sales volume forecasts are unchanged.
Timber Sales Prices. Given the recent weakness in lumber and timber prices and weakness in stumpage demand, the sales price forecasts for all years are unchanged. This may be too conservative for FY 22 as lumber prices are already climbing again and auction prices have remained high (the November auction prices were very strong, but came in after the forecast numbers were finalized and were not included in this forecast). However, auction prices have been volatile, so it remains a reasonable forecast, though it may be on the lower side of the likely range.
Timber Removal Volume and Prices. The removal volume forecast is unchanged in outlying years. Removals to date in FY 22 are in line with expectations.
Removal prices are slightly decreased due to changes in the value of timber in inventory.
Timber Revenue. Timber revenue in all years is changed slightly due to the adjustments in removal prices.
Timber revenues for the 2021-23 biennium are $357 million — around 1 percent higher ($2 million) than previously forecast. Forecast revenues for the 2023-25 biennium are decreased slightly.
Non-Timber Revenues. In addition to revenue from timber removals on state-managed lands, DNR generates sizable revenues from managing leases on uplands and aquatic lands.
Forecast uplands revenue for FY 22 is decreased by $1 million to $46 million, due to significant damage to wheat harvests from the drought and heat wave this summer. This drop in revenue outweighed a small increase in expected revenue from mineral and hydrocarbon leases.
The aquatic lease forecast for FY 22 is reduced slightly due to slower mineral and hydrocarbon extraction on aquatic lands.
The geoduck forecast revenue for FY 22 is increased slightly to $17 million based on much higher harvests for contracts from the June auction. Additional harvest pounds were made available so that around 481,000 pounds of geoduck were harvested, instead of just the 393,000 that were originally auctioned. The revenue forecast for geoduck would have been increased more, to a little more than $18 million, if harvests for the rest of the year didn’t face significant risks. Harvesting on one of the more valuable tracts was unavailable for a time due to paralytic shellfish poison. And now that tract will be unavailable until early next year because of weather conditions, so it is unlikely that those lost pounds will be recovered for this fiscal year.
Additionally, there are serious issues with compliance vessel availability. Of the five boats DNR has for compliance monitoring, only two are regularly in working order at any given time. The rest need repairs, but these have been delayed indefinitely because the parts are unavailable.
Total Revenues. Revenues for the 2019-21 biennium (FYs 20 and 21) were $503 million — $19 million higher than previously forecast. The forecast revenue for the 2021-23 biennium are decreased by $5 million to $506 million.
Other notes to the Forecast. In addition the ongoing a COVID-19 resurgence, a number of sources of uncertainty may affect DNR revenue specifically, and the overall economic activity more broadly. These include: legal challenges to the sustainable harvest volume and marbled murrelet conservation strategy; uncertainty about the type and quality of stumpage DNR is able to bring to market more than six months out; the ongoing trade war and political tension with China directly affecting timber and agricultural exports and prices; uncertainty about the stability of the current high housing starts level; supply chain issues across the world economy threatening to undermine economic growth more broadly as well as affecting timber-specific industries, such as a lack of glue impairing plywood manufacturing or the slow-moving default by one of China’s largest real estate developers that threatens to become a "contagion" and cause a cascading wave of defaults across the country. Additionally, although the timber sales volume estimates are based on the best available internal planning data, they are subject to adjustments due to ongoing operational and policy issues.
From the beginning of 2018 until just before the COVID-19 pandemic, the U.S. and China engaged in an escalating trade dispute. Prior to the pandemic, the tariffs on geoduck were 25 percent and were a significant driver of the drop in geoduck prices in late 2019. The log tariffs and a slowdown in housing starts were the major contributors to the lower domestic price of logs through late 2019. With the pandemic, tariffs were reduced to 5 percent tariff on geoduck, wheat, and softwood logs. There’s no indication that tariffs between the countries will be reduced further or removed soon.
In addition to the coronavirus and the trade tensions discussed above, other things could undermine Chinese demand for wood, such as the continued loss of Pacific Northwest market share to international and Southeastern U.S. competitors.
Another issue on the horizon that should be mentioned in relation to timber markets, is that Russia appears to be moving forward with legislation banning the export of timber from the beginning of 2022. Given that Russia supplies around 12 percent of world log exports, the ban will have a significant impact on log supply across the world. In the short term, this will likely push up log prices across the world, and will mainly affect China, which gets a significant amount of logs from Russia. This will also likely push up lumber and wood product prices. This has not been built into the forecast prices.
Finally, climate change has emerged as a more meaningful immediate risk as opposed to an amorphous risk in the far future, as previously rare extreme weather events become more common. Most recently, in September and October, extraordinary rainfall in British Columbia destroyed roads and railways, essentially halting timber harvests and lumber production and timber exports through the port of Vancouver. Additionally, the drought in Washington this year appears to have decreased wheat production on DNR lands by about 40 percent.
Droughts and high temperatures are also increasing wildfires. Although these do not appear to have seriously affected revenue from DNR timber lands since 2015, they pose a significant risk to both our short-term timber revenue forecast, potentially destroying standing timber under contract, as well as long-term revenue by destroying younger stands that would be harvested in future decades. Recent research suggests that the massive fires in Oregon around Labor Day 2020 caused not only immediate damage, but will reduce future Oregon harvests by 115 to 365 mmbf per year for the next 40 years. That, with the more immediate damage of the fires, suggests an overall economic impact of $5.9 billion9.
As a reminder, we are not epidemiologists nor experts on public health or pandemics. This section is written with our best understanding of the pandemic and its dynamics gathered from reputable sources with the aim of translating those into likely broader economic effects and then more direct effects on DNR revenue. In addition to the significant uncertainty still surrounding the future path of the epidemic even for experts, uncertainty arises from our limited experience and understanding.
With "herd immunity" being broadly defined as when enough of a population has enough immunity that small outbreaks of disease will not become large disruptive outbreaks. See the discussion and definition here: https://publichealth.jhu.edu/2021/what-is-herd-immunity-and-how-can-we-achieve-it-with-covid-19
See https://covid.cdc.gov/covid-data-tracker/#vaccinations_vacc-total-admin-rate-total for a definition of full vaccination.
This may no longer be the case with the new omicron variant, which a pre-print study suggests has a much higher reinfection rate than previous variants, https://www.medrxiv.org/content/10.1101/2021.11.11.21266068v2
2020 Labor Day Fires: Economic Impacts to Oregon’s Forest Sector, Oregon Forest Resources Institute, https://oregonforests.org/sites/default/files/2021-09/OFRI-LaborDayFiresEconomicReport_Final 2021.pdf
Fiscal Year 2022
September 2021 | November 2021 | February 2022 | June 2022
Fiscal Year 2021
Fiscal Year 2020
September 2019 | November 2019 | February 2020 | June 2020*
*Not completed due to COVID-19 pandemic.
Fiscal Year 2019
Fiscal Year 2018
Fiscal year 2017
Fiscal Year 2016
Fiscal Year 2015
Fiscal Year 2014
Office of Budget & Economics
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