The U.S. sheep inventory declined from 49 million head in 1942 to 9 million in 1989. Lamb imports have also declined and, in relation to U.S. production, are not seen as a major cause of the sheep industry's problems. Production has declined despite positive returns to producers. Government payments under the wool program provide an important source of income for the sheep industry. In recent years, the industry, including the marketing sector, has stabilized. Imports have followed the downward trend in domestic production and respond counter-cyclically to domestic price fluctuations. A major challenge to the industry is to expand consumption of lamb, a relatively expensive red meat. This study, prepared in accordance with section 4508 of the Omnibus Trade and Competitiveness Act of 1988, focuses on production of lamb and lamb products, returns in the sheep industry, demand and marketing trends for lamb, and lamb imports, both live and product.