A Fragile Housing Recovery Built on Credit

Back to Library

Lumber Briefs
Issue #10232 - November 2018 | Page #78
By Matt Layman

Many Americans are not overzealous about the moderate improvements to their lifestyle, income, and overall state of wellbeing during this economic recovery. That is being expressed by the stock market’s decline and increased recession rhetoric.

No in-depth statistical analysis is needed to see the cracks in the punch bowl. A 7th grader can deduce the obvious. Hesitancy to invest in housing is based upon the fact that current economic activity is government induced and government supported and government dependent.

If that were not enough by itself, our 7th grader asks one question. How is this splurge in government spending being paid for? Is it cash in the bank? Nope. Is it tax increases? Nope. Is the government spending being financed? Yes.

The U.S. National Debt is now more than $21 trillion. And, don’t forget about the windfall cash cow...tariffs. 20% duties is a back door consumer tax.

The U.S. Federal government and its citizens are both spending more than they earn or collect...unsustainable.

Large companies’ stock buy backs have increased YoY by 40% while capital spending has increased 10%. Companies have more money than they need to supply demand.

Like our lumber market, the U.S. economy is over supplied, making it vulnerable to lower prices/stocks. It is being kept afloat by continued government spend-and-borrow economics.

Check out the data in the chart. Note the debt increases since 2000 (broken down by presidential administrations).

Based upon average annual increase, Trump is doing better than Obama but almost double George “W” Bush.

About the Softwood Lumber Tariff

Trump has stolen it. Instead of an industry induced duty that offsets unfair trading practices, whereby at least a portion of the offenders’ penalty is distributed to the offended, Uncle Sam has stolen it and is spending it. Furthermore, the current 20% tariff has no trigger price based upon the price of lumber. Instead it is a fixed value all the way to $0. As it stands today, Canadian lumber producers’ breakeven is 20% higher than when operating under the last Softwood Lumber Agreement. That influences the landscape of the 2019 lumber market.

We should expect continued price volatility in 2019 as mills fiddle with production. Additional SYP lumber and OSB production will be tempered with price pressures on Canadian SPF. 2019 will likely be littered with uncertainty in the economy, tariffs, lumber production, housing demand, and political discourse.

Timing your lumber buys is more crucial than ever before. In 2017, SPF-W volatility increased from 37% to 63%. 2018 doubled again to 124%.

Average weekly price change YTD 2018 is $18. In 2017, the weekly rate of change was less than $7.

YTD, one truckload per week of 2x4#2 SPF-W has changed up and down a total of $765/mbft. That is $17,212 per truck of opportunity if you only bought one truckload per week. LLG members are reaping the benefits of volatility by timing their purchases. At this writing, we are buying for a first-week of November reversal low...a rally.

Looking Forward...ML

A veteran lumberman, Matt Layman publishes Layman’s Lumber Guide, the weekly forecasts and buying advisories that help component manufacturers save money on lumber purchases every day. You can reach Matt at 336-516-6684 or matt@laymansguide.info.

Matt Layman

Author: Matt Layman

Matt Layman, Publisher, Layman’s Lumber Guide

You're reading an article from the November 2018 issue.

Search By Keyword

Book icon Issuu Bookshelf