Recession by definition: A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.
Historically, three consecutive quarters of declining economic activity signals a recession. That is USELESS! Why? Housing and lumber demand are leading indicators of economic activity. When economists determine a recession is present, it is by definition nine months behind a downturn in housing stats and lumber demand.
That said, lumber prices, even in a recession, still follow cycles: specifically, the cycles identified by LLG’s Forecasted Decision Points. In recessions, these FDPs will have lower highs and lower lows than in economic expansions like the past several years where we see higher highs and lows.
From this perspective, the FDPs should be a leading indicator for a slowing economy...by 6–9 months. Now, hold on a minute before you dump all your lumber. So far, we have not had a lower high, however we did make a lower low at the week #15 FDP. The FDPs can show us “when” to look for the next reversal and possible trend changes. A lower high at the next FDP, week #21 area, will be an early indicator of an economic slowdown.
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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.com.