Oregon’s Wood Product Manufacturing Industry Is Still Important, Especially in Rural Areas

February 12, 2018

Once Oregon’s largest manufacturing industry, employment in the wood product manufacturing industry has gone through large, well-publicized losses since the early 1990s, dropping its employment below computer and electronic manufacturing and food manufacturing. Despite the losses, wood product manufacturing is still a large industry in Oregon and is especially important to rural areas of the state.
Employment Trends

Between 1990 and 2016, annual average employment in wood product manufacturing dropped 23,600, or 51 percent. Similar losses were experienced in all subsectors, with sawmills and wood preservation dropping 5,400 (45%); plywood and engineered wood products dropping 9,500 (53%); and all other wood product manufacturing, which includes millwork and prefabricated buildings, dropping 8,800 (54%).

Although the industry has been in decline over the long term, it trended upward for a short period during a national housing boom between 2003 and 2005. During that period, the industry increased from an annual average of 31,100 jobs to 32,400, an increase of 1,600, or 5.0 percent.
The industry was then hit hard by the Great Recession. The overall wood product manufacturing industry dropped 13,500 (41%) between 2005 and 2011. Since then, the industry has been slow to rebound, adding 3,500 jobs, or 18 percent, between 2011 and 2016 to reach 22,700. As of the writing of this article, estimates show that wood product manufacturing continues its slow rebound, reaching 23,000 as of June 2017.

Low demand from U.S. single family home construction coming out of the recession is one reason for the slowness of the rebound. The prerecession peak of roughly 1.7 million starts in 2005 dropped to a low of 431,000 in 2011. Starts have recently recovered to a more normal 1.2 million in 2017 causing an increase in demand.

A strong dollar was another reason for lagging demand for Oregon wood products. A strong dollar makes U.S. manufactured goods less competitive overseas and imports more competitive in the U.S. Although there has been some weakening on international markets recently, Canada is a major competitor in lumber markets and a U.S. dollar has been worth roughly 1.25 Canadian dollars for most of 2017.

Finally, although lumber prices are high in 2017, the price of logs has also been high because of supply restrictions from forest fires in the western U.S. and Canada in the summer of 2017. This cuts into profits and limits employment growth.

Smaller Harvest, Technology, and Economies of Scale Contribute to the Employment Decline

Several structural shifts in the wood products industry have contributed to the employment decline. First, there was a drop in timber harvests from environmental concerns in the early 1990s. As harvest from federal lands reduced the amount of available raw material to mills,  employment dropped, indicating that harvest reductions were a cause for the employment loss in the early 1990s.
New technologies brought another structural change to the industry by making lumber mills less labor intensive. Employment continued to drop even after harvest levels stabilized in the late 1990s and employment did not increase much despite a housing construction boom in the mid-2000s. Jobs in wood product manufacturing per million board feet harvested dropped steadily after 2000, likely due to technology.
In addition to new technologies, smaller mills were shuttered, creating efficiency through economies of scale (larger mills can produce more per worker). The average production of sawmills operating in the western U.S. increased as smaller mills were shuttered and efficiency increased through economies of scale and new technology.

Lumber production per worker in Oregon increased rapidly in the early 2000s then dropped during the recession. It’s likely that mills cut production through fewer hours instead of letting go of workers during the recession. After the recession, production per worker increased to the elevated levels it had reached before the recession. Although the data has some error range, it appears that large efficiency gains were realized early in the 2000s and may be leveling off.
Wood Product Manufacturing Is Still Important in Oregon, Especially in Rural Areas

Even with the decline, wood product manufacturing is still a large industry in Oregon. In 2016 there were 22,700 people employed and roughly $1.1 billion in total payroll in wood product manufacturing. While statewide the industry makes up only 1.2 percent of total employment and 1.2 percent of total payroll, the concentration is much higher in some counties, especially rural ones. For instance, in Douglas County 8.0 percent of total employment and 10.6 percent of total payroll was in wood product manufacturing. Most of the counties with a high concentration of employment in wood product manufacturing are rural.

In counties where the percent of total payroll exceeds the percent of total employment, average wages are higher in wood product manufacturing than the overall average wage. This is the case in most of the rural counties listed, indicating that wood product manufacturing provides some of the higher paying jobs in rural counties.
Occupations in Wood Product Manufacturing Generally Pay Well and Do Not Require High Levels of Education

The top 20 occupations by 2014 employment in wood product manufacturing tend to pay well, with average annual wages of $30,000 or more. Ninety percent of the top 20 occupations require a high school diploma or less. Only general operations managers requires a college degree. Some of the more technical occupations like industrial machinery mechanics and electricians have average annual wages over $50,000 and require only a high school diploma, providing opportunity for those who don’t get a college degree.

Forecast

Employment projections from the Oregon Employment Department show that wood product manufacturing employment is expected to continue growing slowly by adding 2,900 new jobs between 2014 and 2024, for a 13 percent growth rate. Demand for wood products is expected to grow along with a strong economy and housing market. In addition, the millennial population surge is reaching an age where household formation is expected, which should increase the demand for housing and wood products.

Like many industries, wood product manufacturing has an aging workforce reaching retirement age. This creates additional demand for workers through replacement needs. In addition to the 2,900 jobs that the industry is expected to create between 2014 and 2024, there are expected to be roughly 5,000 replacement openings, largely due to retirements.