{"id":9560,"date":"2021-05-06T16:29:54","date_gmt":"2021-05-06T16:29:54","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9560"},"modified":"2022-02-26T13:05:52","modified_gmt":"2022-02-26T13:05:52","slug":"rising-lumber-prices-reflect-inflationary-pressures-throughout-economy","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/rising-lumber-prices-reflect-inflationary-pressures-throughout-economy\/","title":{"rendered":"Rising Lumber Prices Reflect Inflationary Pressures Throughout Economy"},"content":{"rendered":"\n

Michael and Shea S.\nfrom Boise, ID asked: <\/em>Hi Mitch, my wife and I own a fencing business in\nIdaho, and we have witnessed soaring lumber prices first-hand. We\u2019re curious\nhow long you think this will go on, and whether it is showing up in other parts\nof the economy.<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thanks for emailing, Michael and Shea. In owning a fencing\ncompany, you have direct exposure to the lumber markets, so you can see\nfirst-hand just how quickly prices are rising. In fact, wood prices have now\npushed into record territory.1<\/sup> As you can see in the chart below,\nlumber prices are not only pushing into new highs, the pace of acceleration has\nalso been sharp over the last few months:<\/p>\n\n\n\n

Producer Price Index:\nLumber<\/strong><\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis2<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n

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To answer your question about \u2018how long this will go on,\u2019 I\nthink it is important to first understand the sources of the price pressures. In\nthis case, as ever, prices are being influenced by supply and demand forces. <\/p>\n\n\n\n

Let\u2019s start with supply. When the pandemic ravaged the\neconomy last year, sawmills let workers go and slowed production down to a\ntrickle. By April 2020, 40% of North America\u2019s sawmill capacity was offline. Decision-makers\nat sawmills cannot be blamed for shutting down \u2013 it seemed like the pandemic\nwas going to cause a lot of collateral economic damage and the housing markets\ndid not seem immune to the downturn. <\/p>\n\n\n\n

But, as we now know today, the housing market did not falter\nduring the pandemic \u2013 it strengthened considerably! This unexpected outcome saw\ndemand return to the markets far faster than anyone anticipated, and pushing\nproduction back up to pre-pandemic levels has been a major challenge for\nproducers. Even today, wood product production is 16% lower than it was in\n2006, which was the peak of the previous housing cycle. Mill owners are backed\nup with orders through mid-summer.<\/p>\n\n\n\n

On the demand side, the pandemic nudged many first-time\nhomebuyers into the market, as high numbers of millennials opted to leave\ncities for more space in the suburbs. Housing demand has remained very firm,\nand housing prices have seen significant jumps over the last twelve months. Builders\nare reporting record home sales, and more buyers are at the ready. To answer\nyour question, I think lumber prices will continue to rise as long as these\nsupply and demand dynamics remain, which I think is at least the next few\nmonths if not the balance of the year. <\/p>\n\n\n\n

As for whether price inflation is showing up in other parts\nof the economy, we are definitely seeing pressures in commodities and input\ncosts rising at factories, which I think will trickle down to consumer prices\nas well. Supply chain bottlenecks have been contributing to price pressures,\nand rising M2 money supply opens a door for too much money chasing too few\ngoods. These are all issues we should be keeping an eye on. <\/p>\n\n\n\n

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Increased demand and supply chain bottlenecks are pushing prices higher in many areas of the economy<\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-9560","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9560","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9560"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9560\/revisions"}],"predecessor-version":[{"id":10403,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9560\/revisions\/10403"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9560"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9560"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9560"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}