Mixed Blessings: COVID-19 Has Some Sectors in Turmoil

By Frank Fitts

When COVID-19 struck, the millwork industry was in a good position, with many companies experiencing record sales. The unfathomable changes that followed have altered the way we think, travel, communicate, work, purchase goods and cope with day-to-day life in general, changing our lives for the foreseeable future. In millwork, it’s debatable how many knew what Zoom was before January 2020, but the pandemic has catapulted us into a new age.

In 2020, we were expecting the largest growth in the U.S. economy for decades and COVID-19 either canceled or exploited that projection for various sectors of the economy. Fortunately for millwork providers, the housing and remodeling industries were considered essential businesses in most parts of the nation and therefore were allowed to continue operating amid shutdowns. As people chose to spend disposable income on home improvements, demand for materials went through the roof.

Some commodities, however, were less fortunate, with many still depressed by third quarter 2020. Hardwood lumber, for example, showed a decrease in demand by as much as 42% from highs in second quarter 2018. I visited several hardwood sawmills last September, where I discovered that simply breaking even was a new part of their business plans. Since that time, hardwood lumber prices have gone up in some cases by 34%, while demand has returned and is expected to continue increasing.

Just Keeping Up

Despite COVID-19, many sectors of construction haven’t experienced slowdowns. Instead, some have seen both prices and demand soaring—especially in the residential sector. Amid the pandemic, home has become the new office, school, restaurant, playground and center for entertainment. At the same time, the realization that we can now work from remote locations has changed demographics. We are moving out of some states in record numbers and millennials are beginning to buy homes. As a result, the U.S. Census Bureau reports housing starts in November 2020 reached a seasonally adjusted annual rate of 1.5 million units—12.8% higher than in November 2019.

Commodities such as dimensional lumber and plywood are at all-time highs. New sawmills are appearing across the south, to take advantage of supply needs. Pine stumpage is plentiful, thanks to the Conservation Reserve Program (CRP), started in 1985 and, as my old friend, John Tyler McShan, said, “The pine tree grows like a weed; the good thing is people can use it.” Meanwhile, we have plenty of raw material, but production cannot keep up with demand. As a result, the price of dimensional lumber has risen 80% since April 2020, according to the National Association of Home Builders, and plywood has more than doubled, while OSB has seen a 78% price increase over the past year. This has increased the average cost of the median size home by $16,000. Fortunately, historically low interest rates help to offset those added costs, but hopefully we will see lower material costs from supply improvements going forward.

So where do things stand for the time being? Well, for now, higher costs are an unavoidable fact. But in a sort of mixed blessing, the construction industry is experiencing record growth. That’s projected to continue through 2021.

Frank Fitts is associate vice president of WMA and president of Fitts Stair Components.
frank@fitts.com

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