Economic Focus: December 2022

As 2022 winds down, we have seen a recent change in customer behavior and demand patterns that have emerged over the past two months. To look forward to 2023, we must first take a look back at recent history to understand the shift. 

Back when the COVID shutdowns first began, we saw a near-immediate drop in demand and shipments to our Distribution and OEM customers — to the tune of strong double-digit declines from baseline. 

However, due to the school closures, working from home, etc., we saw a massive increase in demand at retail. Those working from home opted for better home offices, kids doing school remotely needed nicer desks, and simple repairs and remodels were undertaken by homeowners due to the extra time at home.

This retail buying frenzy was supported by the stimulus checks and other cash benefits provided by the U.S. government during this time and the lack of similar or substitute products in stores. This massive spike in retail shipments held for about one year, beginning at the end of Q1 2020.

At the same starting point, distribution and OEM shipments declined quite rapidly for several weeks, recovered modestly before plateauing, then finally got back to pre-COVID levels around week 40 of 2020. Retail shipments sustained slightly ahead of pre-COVID levels for quite some time. 

However, as supply levels of comparable products and imported plywood increased, shipments declined slightly. In fact, a good percentage of the elevated level of shipments was just to replenish inventory levels that had been very low for nearly a year. Distribution and OEM did not have the same issue occur until recently, as inventory levels for most products have been right-sized for a month or two. As such, demand has slowed, as customers have been — correctly — careful about carrying too much inventory for the end of year.

As such, we expect our retail shipments to decline moderately in 2023, relative to the total of 2022. We expect the 2023 rate of shipments to be close to the current rate, but we won’t have the benefit of inventory replenishment. 

Currently, feedback from our sales force indicates the small-medium shops are still relatively busy and expect to be into next year. Larger shops and mass producers are reported to be a bit slower. Some of the expectations for demand are driven by geographic regions. 

This is in part due to a recent outmigration from many larger metro areas to smaller counties. Again, this is likely a residual impact of the COVID shutdowns, as many did and still can work from home. A study from the U.S. Census Bureau, published in March of 2022, indicated that “on average, smaller counties tended to have increases in net domestic migration this past year, while larger counties (those with populations of 500,000 or more) tended to have decreases in net domestic migration.” 

This study also found that the South saw a large positive net domestic migration last year, with the Midwest seeing a moderate increase. Both the West and Northeast saw a decline. This will impact demand regionally for housing, building materials and remodeling over the near term, especially if these trends have continued in 2022.

At a recent industry conference, Columbia heard a good deal of positive feedback regarding our ability to supply materials over the last two years in the face of COVID shutdowns, massive supply chain disruption and labor and logistics shortages. Overall, most customers indicated a degree of optimism for next year in spite of a great deal of negative media headlines. Columbia is committed to serving all of our customers in 2023, just as we did over the past few years. I wish everyone a Happy Holiday, Merry Christmas and Happy New Year!