Cutting Edge Newsletter™ August 2007Business BriefingUsage of US Hardwoods DeclineBy Art Raymond, araymond@raymondnet.com 
2006 saw the use of U.S. hardwoods continue to decline. After reaching a high of 12.37 billion board feet (BBf) in 2000, total hardwood consumption by all users has dropped by 24 percent. Machinery makers who supply higher value-adding sectors like furniture and cabinetry have seen their customers’ use of U.S. hardwoods fall by nearly 26 percent since the turn of the century.
U.S. wood users are purchasing less imported hardwoods, too. Fewer hardwood lumber imports are flowing into our market than at any time during the last decade. Interestingly, imports of tropical hardwoods jumped 3 percent last year. Despite the environmental stigma associated to ‘rain forest’ woods, U.S. consumers apparently like exotic species more than traditional domestic woods. This trend is also evidenced by the 28 percent decline in hardwood imports from Canada since 2004. Canada, long a heavy trade partner in hardwoods with the U.S., accounted for only 38 percent of hardwood lumber imports in 1Q2007 vs. 72 percent in 2003. Thankfully for hardwood producers, the weak U.S. dollar is supporting strong exports of U.S. hardwoods. Last year U.S. mills shipped 1.33 BBf abroad. While the long-standing demand for U.S. species by U.S. furniture, flooring and cabinet consumers has weakened, buyers around the world apparently like our wood. Second quarter gross domestic product jumped to a 3.4 percent annual rate, the strongest pace in more than a year. Economic growth in 1Q2007 was an anemic 0.6 percent, the slowest in four years. The good news for machinery makers is the strength of business investment. U.S. businesses boosted their spending on plant and equipment in the quarter by a stunning 22.1 percent annual rate, the strongest in 13 years. But Homebuilding Slide Continues The downturn in residential construction that began in 2006 continues. The bad news is that forecasts for next year show no indication of a meaningful recovery. History & Projections for Housing Starts & Home Sales
Sources: National Association of Home Builders, National Association of Realtors Remodeling, an important sector of homebuilding for the wood products industry, is now only growing at a 2 percent rate quarter to quarter vs. 20 percent in 2005. The only bright spot for housing-related wood products is kitchen remodeling. The National Kitchen & Bath Association is forecasting a total of 7.55 million kitchen remodeling projects in 2007 vs. 7.4 million in 2006. Wind Energy – To generate the same amount of energy as a single 1,000 megawatt nuclear power plant requires a 475 square mile wind farm. Providing enough power to meet U.S. electric demand in 2005 would have taken an area the size of Texas covered with windmills running 24 hours per day. Biomass – Any significant contribution by biomass fuels requires land areas up to ten times larger than wind power. Hydropower – Every drop of annual rainfall in the Canadian province of Ontario stored behind a 200 foot high dam would be required to generate 80 percent of the electricity supplied by Canada’s 25 nuclear plants. Solar - The entire State of Connecticut would have to be covered with solar cells to supply electricity to power New York City. Even eco-activists must admit that heavy reliance on these renewable sources is not so ‘green”. The best route to eco-friendly U.S. energy independence must combine improved efficiency by users, increased use of natural gas and nuclear power. Sector Report Kitchen Cabinets The continuing downturn in new home construction mentioned above has slammed the cabinet industry. June marks the eighth straight month of weakness in the cabinet industry. According to the KCMA’s Trend of Business Survey, June sales fell by 15 percent versus the same month last year. YTD 2007 sales were down 13.5 percent. For the year, stock cabinet sales have fallen just over 20 percent vs. last year while semi-custom and custom have declined only 7 percent and 5 percent respectively. The latter categories are typically buoyed by the remodeling segment of the homebuilding economy during downturns.
Home Furniture At the company level…
News from Canadian furniture makers continues grim…
Office Furniture BIFMA, the sector trade association, reported June orders for office furniture up 13 percent. Shipments increased by only 5 percent. Analysts, who have been forecasting a slowdown in this sector, were surprised by this performance and point to the strength in corporate profits, non-residential construction, and service sector employment as reasons. The industry is shipping at an $11.08 billion rate vs. $13.35 billion at the historic top of late 2000. At the company level…
Wood Flooring NOFMA, the primary flooring industry association, has ceased reporting monthly strip flooring production data. When an alternative source for this information is identified, Business Briefing will resume reporting this indicator of flooring industry health. At the company level…
Public PolicyWhat Are You Willing to Give Up?By John Satagaj, email@jsatlaw.com  Recently, I had the privilege of participating in a panel discussion hosted by the United States Secretary of the Treasury, Henry Paulson. The broad theme was to discuss the impact of the tax policy on business competitiveness in the global marketplace. An underlying theme of the discussion was that the United States' corporate marginal tax rates are too high compared to other countries and if we could eliminate some of the preferences and deductions, and thereby broaden the corporate tax base, we could lower the corporate marginal tax rates. This would allow for a more “neutral” allocation of resources by corporations. Or, in the alternative, it might allow for more immediate expensing of investment costs. Note the focus was on C Corporations, not S Corporations, partnerships and sole proprietorships, all of which pay taxes as “flow through” entities on their owners’ personal tax returns. It was an interesting discussion. Within the Organization for Economic Co-operation and Development (OECD), the United States now has the second highest statutory corporate tax rate (including state corporate taxes) – 39 percent – compared with the average OECD statutory tax rate of 31 percent. In addition, corporate profits are subject to as many as three layers of tax: the corporate income tax, investor level taxes on capital gains and dividends, and the estate tax. The Department of Treasury makes the point that “the double or triple taxation of corporate profits distorts a number of economic decisions important to a healthy economy. It distorts corporate financing choices by taxing interest earned on corporate bonds less heavily than corporate profits. As a result, corporations are induced to use more debt than they otherwise would. It distorts corporate distribution policy by taxing corporate earnings distributed as dividends more heavily than corporate earnings that are retained and later realized as capital gains. As a result, it confounds market signals of a company’s financial health and may have important implications for corporate governance. It penalizes investment in the corporate form of business organization by taxing corporate income more heavily than other capital income.” The tax code is loaded with “special” provisions, such as exclusions from income, deductions allowed or enhanced from what otherwise would be allowed, preferential tax rates, income deferral, and tax credits. It is estimated that special corporate tax provisions narrow the corporate tax base by roughly 25 percent. If the tax base were broadened by removing these special provisions, the top corporate tax rate of 35 percent could be reduced to 27 percent, or, as an alternative, about 40 percent of investment costs could be written off immediately (i.e., expensed) by all businesses. One thing the panel discussion got me thinking about is the Research and Development Credit. According to the Department of Treasury, “while research and experimentation undoubtedly has positive externalities for the economy, the R&D credit has been one of the most controversial issues between taxpayers and the IRS. Much of this controversy arises from uncertainty over the interpretation of the statutory requirements for credit eligibility. The definition of eligible research is inherently difficult, and in audits of taxpayers the IRS is required to make technical judgments about whether an activity was directed to produce truly innovative products or processes. These audits create a burden for both the IRS and taxpayers. The credit also creates significant compliance costs. Businesses are required to maintain detailed records for the credit, which may differ from the types of records normally kept by its operational units. The design of the credit also creates complexity. Taxpayers have three alternative research credit structures to choose from and have to make multiple calculations to determine which credit structure provides the most favorable tax treatment. While a subsidy to encourage private-sector investment in research may be viewed as desirable, the administrative difficulties erode the positive incentives the provision provides.” In recent years, WMMA has pursued a policy that the R&D credit should be simplified to allow smaller manufacturers to use it. In particular, WMMA has advocated a flat credit rather than one that rewards incremental investments. If we cannot get an “improved” credit, maybe it would not be so bad if the credit was repealed. After all, the last study I saw indicated that 85 percent of the credit’s benefits go to firms with more than $50 million in assets. And if the loss of the credit lowered the corporate tax rates or allowed more immediate expensing of equipment, that just might be a good deal. What do you think? I was invited to participate in the panel in my capacity as President of the Small Business Legislation Council (SBLC). SBLC is a long-time coalition of approximately 70 trade associations that share a common commitment to small business. WMMA is a member of SBLC and Ken Hutton, WMMA Senior Vice President of Public Policy and Industry Relations is a member of the SBLC Board of Directors.
International Business DevelopmentNew International Business Tool Developed for Members
Country Evaluation Sheet Overview
In addition each of the data sets can be assigned a weight. A covering sheet or Flash Report is included that reflects, by country, the relative scoring based on the weights of all data. This allows the user to establish criteria against which he can evaluate the relative importance of a group of countries. The committee has assigned weights to each data set reflecting what it feels is the best combination to be used by a member that is fairly new to exporting or who devotes relatively little attention to the overseas market. To view the Country Evaluation Sheet and access supporting information and instructions, please click here. A couple of words of caution: First, the assigned weights are subjective and assumes the user markets equally to all segments of the woodworking industry (sawmill, joinery, furniture and cabinets). You are encouraged to assign weights based on your most important criteria and experience. If you need assistance, please contact Harold Zassenhaus, Export Director. Second, the Flash Report reflects percentage values based on assigned weights and relative value to all other countries. The absolute numbers can be found in the supporting spreadsheets. The data will be updated semiannually, or as data permits. We will keep you updated as the committee continues to review the data and evaluates the weighting factors and format for the Flash Report. We are releasing it in the current state because it was the overwhelming opinion of those beta testing the product as well as the committee that the Country Evaluation Sheet provides a significant value to members.
Business DevelopmentSales Forecasting Tools
Association NewsReflections of a Prior Executive Vice President
Now 15 years later, I find myself serving the Association in a new capacity, as I have turned over the reins of leadership to Bill Norton. As many of you know, at the direction of WMMA’s Board of Directors, I have been spending more and more time engaged in leadership positions within the woodworking processing industry and the manufacturing community overall. That engagement has also led to a more dynamic, interactive approach for Public Policy each February with the Fly-In. The WMMA Board has asked me to focus on those areas as the Association’s Senior Vice President for Public Policy and Industry Relations. I am honored to accept that challenge and responsibility. In this capacity, I will be working with the Association’s current Executive Vice President, Bill Norton. He has my total support in this role. I know you will support him just as you graciously worked with me over the years to make your industry association a better organization for each member and secure its leadership role within the industry. Thank you for all the wonderful memories over these past 18 years. I look forward to more memories with you in this new role. Gratefully, Become a Cutting Edge Contributor - Submit Your WMMA Success Story What WMMA membership benefits are you taking advantage of? Use this form to capture how WMMA has helped you.
Now is your chance to help improve the safety standards for woodworking machinery. If you use, design, manufacture, sell, distribute, install, repair, or rebuild any of these machines, you should be interested in their safety. The ANSI Sub-Committees draft the standards and you can participate. Most work is done electronically and by telephone – little or no travel required. The goal of the Sub-Committees is to draft meaningful and comprehensive standards for the safety of specific machines. Your participation on a committee will affect all aspects, from design to use and training, of future products in the woodworking industry. To volunteer for a sub-committee, contact any of the following Chairmen: ASC O1.1-C2 - Gang Rip Saws ASC O1.1-C3 - CNC Machining Center ASC O1.1-C4 – Shapers ASC O1.1-C5 - Straight Line Rip Saws ASC O1.1-C6 – Edgebander For further information, contact the ASC O1.1 Save the Date - WMMA Fall Meetings in Memphis, TN 
17th Annual Woodworking Industry Conference
Mark Your Calendar Today! The Woodworking Industry Conference (WIC 2008) |
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| ©2007 by Wood Machinery Manufacturers of America, Philadelphia, PA. All rights reserved. This publication or any parts of it may not be reproduced in any form without written permission from the publisher. For permission to reprint articles or to send correspondence, write to: WMMA, 100 North 20th Street, 4th Floor Philadelphia, PA 19103-1443 Phone: (215) 564-3484 Fax: (215) 963-9785 E-mail: wmma@fernley.com The opinion expressed in any articles by outside consultants are their own views and not necessarily those of the WMMA. |
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The International Business Development Committee has developed a product that provides real value to WMMA members interested in exporting or outsourcing their products and following the development of other countries. It has been beta tested by the committee as well as 10 members over the course of 2 months.
There have been a number of updates posted to the 
In February 1989, WMMA had just earned the 100th Export Trade Certificate granted by the U.S. Department of Commerce. In doing so, the Association was the 13th non-profit trade organization to earn this designation for its membership. With that honor, WMMA had to decide how to best manage this designation for the maximum benefit of the membership, and an Export Coordinator was named. I was that individual. As such, I accompanied Don White, then WMMA’s Executive Vice President, to Washington, DC to officially receive this designation. Three years later, I had the honor to succeed Don as the Association’s Executive Vice President.
