Quarterly Economic and Revenue Forecasts
UPDATED: June 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, by fax at 360-902-1775, or by email at email@example.com.
Coronavirus pandemic The COVID-19 pandemic is no longer overshadowing all of the normal constituent parts of the forecast. However, it is still an important consideration for the world economy and still poses a risk to the United States.
Since the last forecast, the number of fully vaccinated people in the U.S. has climbed from 20 million to more than 135 million, with more than 168 million having received at least one dose. Additionally, the number of new daily infections, hospital admissions and deaths have continued downward after a small wave in April, falling from a peak 75,000 cases per day, to around 16,000. This is well down from the almost 250,000 new cases per day in early January. It is also the lowest point since the first peak in daily cases in early 2020.
It looks as if the risk of another spike in cases nationally has substantially diminished — though it seems that some areas of the country have much lower vaccination rates and are at greater risk of further outbreaks later in the year. Although there is still a risk that new strains of the disease will emerge, as fewer people get the virus there will be less chance for it to mutate.
Although we don’t expect the pandemic to be an active constraint on the economy, the path of the economic recovery, and how long it will take, is unclear. The massive multiple fiscal stimulus packages and monetary policy response of the U.S. appears to have been enough to mitigate the worst of the damage so that, at least as far as GDP is concerned, the U.S. has fared relatively well. And importantly, personal income and savings increased in 2020. This means that U.S. consumers, as a whole, are flush with cash to spend (though this is a very uneven situation, with a significant portion of the population worse off).
Already, the combination of a re-opening economy and relatively high savings have sharply increased demand. However, supply chain constraints have limited the supply response, causing prices to spike from everything from cars to lumber. This will suppress demand in the short term as the various sectors reach new price equilibria.
Regardless of the short term trajectory of the recovery, right now almost all of the major indicators suggest that it will be very strong.
Overall, the outlook this forecast continues the optimism from the previous forecast.
Lumber and Log Prices. Lumber prices in the third quarter of 2020 were extraordinarily high and, after a briefly pulling back through the fourth quarter to just very high, increased even further since January 2021. Through March 2020, lumber prices had been climbing and peaked at $478/mbf, before crashing to $363/mbf in May. From May, prices rebounded dramatically, peaking at $1,000/mbf in September. Prices fell back to $623/mbf in November and since then have rebounded to $1,203/mbf in April — almost double the highest real prices in any point between 2000 and mid-2020.
The high lumber prices have 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 $711/mbf in October. By January, the price had pulled back to $692/mbf, but has again risen to $718/mbf in April. These are very high historically, but interestingly, still below the prices in early 2018.
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, it appears that the very low interest rates have spurred housing demand and starts, and remodeling and renovation demand also 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 have continued as wood manufacturers haven’t been able to expand output to completely meet demand due to supply chain and labor supply difficulties. Prices are expected to remain high through the third quarter of 2021, before pulling back in the fourth quarter. Prices in 2022 are expected to remain higher than they have been historically, though they’re unlikely to remain as high as they are now.
Timber Sales Volume. DNR now plans to offer around 540 mmbf for sale in FY 21. Given the high demand, it is unlikely that there will be any sales passed in without bids, so we are increasing our FY 21 forecast to 540 mmbf. Forecast sales volumes in future years are unchanged.
Timber Sales Prices. Sales prices throughout FY 21 have been consistently high, with every sale being above the five-year average of $340/mbf, and many of them well above. We are increasing the sales price forecast for FY 21 to $395/mbf — from our initial FY 21 forecast of $300/mbf in the June 2020 forecast, $320 in September, $340 in November, and finally $380/mbf in February. This is due to the continued strong demand and prices.
Timber Removal Volume and Prices. The removal volume in FY 21 is decreased by 10 mmbf to 490 mmbf. Even after our harvest volume forecast reduction in February, harvest volumes to-date have been less than we had expected. It appears that the fire salvage operations from the 2020 Oregon wildfires have continued to tie up much of the log hauling capacity, suppressing harvests in Washington state.
The removal volume forecast is unchanged in outlying years.
The forecast average removal price for FY 21 is increased by $6/mbf to $337/mbf due to the continued high average price of removals to-date and the high value of remaining inventory. Removal prices in outlying years are increased as well, based on higher sales prices in FY 21.
Timber Revenue. Forecast timber revenue in FY 21 is decreased slightly by $0.1 million to $165 million. FYs 22 and 23 are increased, by $3.5 million and $0.3 million respectively.
Forecast timber revenues for the 2019-21 biennium are essentially unchanged at $348 million, while revenues for the 2021-23 biennium are increased by $4 million to $364 million.
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 non-timber uplands revenue forecasts are increased by $1.5 million in FY 21 due to additional revenue from back rent and lease increases in communications, higher revenue from minerals and hydrocarbon, and increased rights-of-way revenue.
The aquatic lease revenue forecast for FY 21 is decreased again this forecast due to continued low rent revenue from non-water-dependent rents.
The forecast geoduck revenue has been increased meaningfully for all forecast years due to better-than-expected prices in recent auctions. Typically, we are wary of increasing outlying years’ price forecast based on recent prices, but the recent prices suggest that there is something of a mean reversion of geoduck prices. Prices dropped significantly in mid-2019 as tariffs between the U.S. and China began affect demand. Then, in early 2020, they fell sharply as the Chinese economy was essentially shut down. As China has gained a level of control over the pandemic, demand has increased and it looks like there’s a new equilibrium of between $7-9/lb. The new forecast reflects the lower side of this range.
FY 22 revenue is higher than the surrounding years because the revenue from the final two geoduck auctions from FY 21 will fall in that year.
Geoduck prices are not expected to increase much above the $7-9/lb. range. Aside from the COVID-19 pandemic, there remains a trade war between the U.S. and China, with high tariffs on geoduck. These are expected to continue indefinitely, limiting Chinese consumption and continuing to push Chinese consumers toward other luxury seafood.
Total Revenues. Forecast revenues for the 2019-21 biennium (FYs 20 and 21) are increased by $2.2 million to $484 million. Revenues for the 2021-23 biennium are increased by $11.2 million to $510 million.
Other notes to the Forecast. In addition the possibility of 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; and uncertainty about the stability of the current high housing starts level. Additionally, while 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.
One issue on the horizon that should be mentioned is that Russia is 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, but will likely be when the legislation is finalized.
As always in the geoduck fisheries, paralytic shellfish poison closures create uncertainty around harvest volumes as well.
Fiscal Year 2021
Fiscal Year 2020
September 2019 | November 2019 | February 2020 | June 2020
Fiscal Year 2019
Fiscal Year 2018
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