Abstract

Changes in national consumption, production, and employment 2005 to 2009

After historic high levels of hardwood lumber consumption in the 1990s, demand plummeted between 2005 and 2009 (Hardwood Market Report 2009, Johnson 2011a). As previously mentioned, the primary causes of this decline appear to be the decline in home construction between 2005 and 2009, the 2008 to 2009 recession, and the continuation of wood furniture imports from Asia causing a further decline in domestic furniture production. This series of events caused demand for lumber to decline dramatically (Fig. 1). National hardwood consumption plus exports declined from 11.6 billion board feet (BBF) in 2005 to 6.6 BBF in 2009 (Hardwood Market Report 2009, Johnson 2011a).

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A review of NAICS definitions found six classifications that include our target industries (Table 1). Nationally, the decline in hardwood lumber demand has been greater in the more profitable appearance-based applications (furniture, cabinets, flooring, millwork, and most exports) than in the less profitable major industrial applications (pallets and crossties; Fig. 1). The only sawn hardwood lumber product that continued to be consumed at 2005 levels in 2009 was railroad crossties. The changes in end use have caused the proportion of lumber consumed in industrial applications to increase from 41 percent in 2005 to 60 percent in 2009 (Hardwood Market Report 2009, Johnson 2011a). This shift in hardwood lumber use caused the price of the most commonly traded appearance lumber (Mid-Grade, No. 1 Common) to decrease (Fig. 2) and hardwood lumber production (Fig. 3) to drop sharply. In contrast, the price of pallet cants and crossties continues to be at levels slightly higher than in 2005. As a result of these market conditions, most hardwood sawmills either reduced production, became idle, or went out of business between 2005 and 2009.

Table 1.— Change in national employment in major hardwood lumber using industries between December 2005 and December 2009.^a

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We examined changes in national employment for major hardwood using industries from December 2005 to December 2009 because most firms questioned for the Tennessee census would likely provide year-end employment data. In general, the change in employment shown in Table 1 is less than the decline in hardwood lumber demand. One possible explanation for this inconsistency is that hardwood lumber is expensive and has continually been replaced by less expensive substitutes (Luppold and Bumgardner 2008). Even the pallet industry has been substituting recycled pallet lumber for new lumber (Bejune et al. 2002).

Changes in employment in Tennessee's secondary hardwood industries 2005 to 2009

Oak strip flooring is the primary flooring product manufactured nationally and in Tennessee. In addition, one large laminated truck flooring manufacturer uses oak. The flooring industry employed 2,433 workers in 2005, and eight large mills employed 2,410 of these workers. Between 2005 and 2009, three of these large plants closed, the other five large plants reduced employment, one small plant became idle, two small plants opened, and employment in this sector declined by 69 percent (Table 2). The corporation that operated two of the large flooring plants that closed also reduced employment by nearly 50 percent at its remaining Tennessee plant but continued high rates of production at its newest facility in West Virginia (Johnson 2011b). As a result of plant closures and shifting production to operations outside of Tennessee, the decline in employment in Tennessee's flooring industry between 2005 and 2009 was 72 percent, which was greater than the 40 percent decline in national employment for the NAICS code that includes this industry.

Table 2.— Change in the number of secondary forest manufacturers in Tennessee and number of employees in these facilities in 2005 and 2009 by facility type.^a

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The furniture industry in Tennessee in 2005 included a diverse set of manufacturers who produced chairs, wooden case goods, upholstered furniture, and furniture parts. In 2005, nearly 8,000 workers were employed by the Tennessee furniture manufacturing sectors in 58 plants, ranging in size from one person to more than 1,000 (Table 2). Nineteen furniture operations went out of business or became idle between 2005 and 2009, eight of which were small (fewer than 25 employees), five were medium-sized (25 to 99 employees), and three were large (100 or more employees). Although we were unable to determine the products manufactured by the idled and closed operations, manufacturers of wood household furniture were disproportionally affected. Overall, employment in Tennessee's furniture industry declined by 50 percent between 2005 and 2009. This decline is greater than the 39 percent decline in upholstered furniture employment nationally but close to the 48 percent decline in nonupholstered furniture employment.

As in the case of flooring and furniture, the 50 percent decline in employment in Tennessee's cabinet industry was greater than the 40 percent decline in employment in this industry nationally. In 2005, Tennessee had 52 cabinet plants employing 1,411 workers (Table 2). The three largest operations employed 64 percent of the workers, the nine medium-sized operations employed an additional 30 percent, and the 40 small operations employed 6 percent. The decline in this industry between 2005 and 2009 disproportionally affected larger operations; only one of the three large and four of the nine medium-sized operations were still operating by 2009. The two large operations that closed were associated with a holding company that has larger plants in Indiana and Iowa. All of the 14 new operations were small, and most employed 10 or fewer workers. This shift in industrial demographics resulted in the small operations employing 45 percent of the workforce in 2009.

Millwork products include moulding, doors, windows, stair parts, and custom wood fixtures. In 2005, Tennessee had 21 millwork manufacturers; 11 of these operations were small, 8 were medium-sized, and 2 were large manufacturers. Both large operations are associated with national corporations that have multiple plants, most of which are located in northern and western states. Between 2005 and 2009 Tennessee's millwork industry lost two medium-sized firms and 12 percent of its workforce. The two large plants lost only 4 percent of their workforce, while medium-sized firms lost 39 percent. The 12 percent decline in Tennessee's millwork manufacturers' employment between 2005 and 2009 is considerably less than the 40 percent decline in national employment in this industry during this period. One possible explanation for the small decline in employment in the two larger operations is that the cost of labor is lower in Tennessee than in northern and western states, resulting in the corporations shifting production to Tennessee.

The number of pallet plants in Tennessee showed little net change because the number of new plants equaled the number of plants that went idle or out of business. The 12 new plants employed more workers than the 12 plants that were closed or idled, which indicates the 20 percent decline in employment between 2005 and 2009 was caused by reduced employment in the remaining plants. The 20 percent decline in employment in Tennessee's pallet industry between 2005 and 2009 is close to the 18 percent decline in national employment for this industry.

Changes in Tennessee's sawmilling industry 2005 to 2009

The primary product manufactured by hardwood sawmills can range from pallet cants to high-quality kiln-dried (KD) lumber. For this article, we segmented the primary lumber into six hardwood lumber product groups: green lumber, KD lumber, crossties, pallets, other, and not specified (Table 3). It should be noted that most mills produce more than one of these products. The “other” category includes manufacturers who listed staves, handles, softwood products, and other miscellaneous items as their primary product. These products are usually manufactured in small sawmills (producing 1 to 2.9 million board feet [MMBF] annually) and micromills (producing less than 1 MMBF annually). The “not specified” primary products were manufactured by micromills that did not provide primary product information.

Table 3.— Changes in the number of hardwood sawmills in Tennessee and volume of lumber produced by these mills for 2005 and 2009 by hardwood lumber product group.^a

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Random length, random width green or air-dried lumber (green lumber) is the most common hardwood lumber product manufactured in Tennessee. Green lumber can be marketed by any size mill but tends to be sold in higher proportions by medium-sized sawmills (producing 3 to 4.9 MMBF annually), small-sized mills, and micromills. In 2005 and 2009 the average green sawmill produced 2.6 and 2.1 MMBF, respectively.

KD lumber can be sold random length, random width, or sorted by length and width. Before the decline in the market, KD lumber tended to be produced by large mills (producing 5 to 9.9 MMBF annually) and very large mills (producing 10 MMBF or more annually). The decline in demand for appearance lumber coincides with the decline in the average size of KD mills in Tennessee, which decreased from 6.7 MMBF in 2005 to 3.7 MMBF in 2009.

Crossties have traditionally been manufactured by smaller sawmills or large mills that specialize in industrial products. In 2005 and 2009, the average tie mill produced 2.1 and 2.0 MMBF, respectively. Pallet lumber can be manufactured by mills of all sizes because it is normally produced from the low-grade centers of logs or cants. In 2005 and 2009, the average pallet mill produced 3.8 and 2.6 MMBF, respectively.

In 2005, mills that listed green lumber as their primary product accounted for 60 percent of the lumber produced in Tennessee, and mills that produced KD lumber accounted for an additional 11 percent (Table 3). Green and KD lumber are normally graded using National Hardwood Lumber Association rules, and these products are primarily used for appearance lumber, but some low-grade green lumber can end up in pallets. In 2009, the volume of lumber produced by mills whose primary product was green or KD lumber declined by 47 and 56 percent, respectively (Table 3).

In contrast, the volume of lumber produced by mills whose primary product was crossties and pallets declined by 13 and 32 percent, respectively. This movement away from lumber used for appearance purposes noted in national markets (Fig. 1) is consistent with primary product trends shown in Table 3. Since 2005, the shift to less profitable industrial products was primarily caused by the decline in the housing market. Therefore, the large shift to the production of industrial products versus appearance production in all likelihood is temporary, contingent on an improving economy.

The 41 percent decline in hardwood lumber products manufactured in Tennessee between 2005 and 2009 is similar to the 40 percent decline in Eastern production during this period. This indicates that changes in Tennessee's sawmill industry during this market contraction may mirror changes in the industry at large. At first glance the most affected mills by size class were very large mills (Table 4). The number of mills and volume produced declined by 54 and 56 percent, respectively, between 2005 and 2009. Although three very large mills went out of business, most of the decline in the number of very large mills was the result of 14 mills reducing production by the equivalent of one or more size classes. Three mills increased production to the point where they jumped up one size class to become very large mills, and two of those mills listed crossties or pallet cants as their primary product.

Table 4.— Changes in the number of hardwood sawmills in Tennessee and volume of lumber produced by these mills for 2005 and 2009 by size class.^a

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Although large mills appear to have fared better than very large mills, the percent change in numbers and volume produced can be deceiving. Of the 29 large mills operating in 2005, 8 went out of business, 1 was idled, and 11 reduced production by one or more size classes by 2009. The decline in the large mill was partially offset by the construction of a green mill and a crosstie mill. Of the 40 medium-sized mills operating in 2005, 7 went out of business in 2009, 7 were idled, and 15 reduced production by the equivalent of one or more size classes. One new medium-sized mill that primarily produces crossties was added between 2005 and 2009.

The proportion of Tennessee's hardwood lumber manufactured in small mills increased from 12 percent in 2005 to 20 percent in 2009. Most of this increase was the result of larger mills downsizing or micromills upsizing. Of the 62 small mills operating in 2005, 11 went out of business in 2009, 17 were idle, and 15 reduced production, thus downsizing them to the micromill classification. This decline was partially offset by the addition of three crosstie mills, one pallet cant mill, one stave mill, and one green mill. The greatest decline in active mills, in absolute numbers, occurred in micromills. Of the 161 micromills in operation in 2005, 11 were out of business in 2009 and 34 were idle. The decline in micromills was partially offset by the restarting of six micromills that were idled in 2005 and the addition of 18 new mills. Of the 24 restarted or new mills that provided product information, 6 listed green lumber as the primary product, 5 listed crossties, 2 listed pallet material, and 5 listed “other” items (framing lumber, cedar, and other miscellaneous items) as their primary product.