Collapsing lumber prices portend a weaker economy

Did you completely miss the utter collapse in lumber futures in recent weeks?  I certainly did.  In just the last 3 weeks lumber futures have fallen 25%.  The Wall Street Journal says the decline has been due to a number of factors including fears of slowing Asian demand, weak US housing markets and excess supply:

“The recent decline in lumber futures was blamed on increased first-quarter mill production that met stagnant domestic demand and exports that were strangled by shipping bottlenecks.

China emerged last year as a dominant buyer in western U.S. and Canadian lumber markets. Mills responded by ramping up production to meet export demand and take advantage of an expected seasonal surge in U.S. house construction as spring arrived. Yet shippers couldn’t keep up with export sales to China and the spring housing demand failed to materialize, creating an oversupply problem that fueled the selloff, which started late last month.

…Despite the growth in Chinese demand, the U.S. remains the top market for North American lumber, so when the U.S. housing market is dormant, lumber futures prices soften, said Jamie Greenough, a broker and lumber market analyst at Global Securities Corp., a securities and commodities brokerage in Vancouver, B.C.”

Lumber prices have had a very close correlation with the US economy.  While prices appear to have stabilized in recent days you have to wonder if this isn’t a sign of more serious weakness overall. One thing is for certain – the US housing market remains mired in a deep recession.