US lumber prices drop: A warning bell for the economy?

Tashkent, Uzbekistan (UzDaily.com) — Forget Wall Street tickers and high-tech indexes. One of the simplest ways to gauge the health of the US economy is by looking at lumber prices. The weakening wood market in the US signals a cooling housing sector. Lumber futures have dropped by 24 percent since the beginning of August, falling below $530 per thousand board feet. That means builders are cutting back on new construction.

Lumber prices matter because lumber is a crucial raw material for US housing construction, especially for new single-family homes. When the economy is strong, housing starts surge, boosting demand and prices for lumber. When the economy slows, the opposite happens.

Major North American lumber producers are reducing their output. Leading lumber firm Interfor said this month it will reduce output by 145 million board feet, or about 12% of normal production. Trade policy uncertainty is one of the reasons. The Trump administration's shifting stance on tariffs for imported lumber has disrupted the construction market. Buyers rushed to stockpile wood earlier this year, resulting in an oversupply.

Another reason, as Professor of Economics Wang Yaojing from Peking University told me, is weak housing demand. In August, new home sales fell 1.4% from last year. Meanwhile, US building permits declined by 2.8% to 1.4 million, the lowest level since June 2020, indicating a potential slowdown in future construction activity.

American households have been retreating from the market as affordability worsens. Home prices have climbed by more than 50% since 2019. Adding to the pressure, a weakening job market is also holding back potential buyers. When you're worried about losing your job, making a big purchase is the last thing on your mind.

A potential Fed rate cut might ease consumers' mortgage burdens, but economists say its impact on the housing market could be limited.

Yu Bokun,
CGTN

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