November 2013 Economic Forecast

David Chertudi
DNR Lead Economist

U.S. Economy and Housing Market. The U.S. economy is improving in fits and starts. The unemployment rate peaked at 10.0 percent in October 2009 and has since dropped to 7.3 percent as of September, barely lower than a year ago. The unemployment rate for recent undergraduates is pushing 13 percent. GDP growth remains modest at below two percent over the last four quarters ending in June, and the recent government shutdown will lower GDP in this and future quarters. The housing market continues to show positive signs: new housing money tree economic forecaststarts in the first eight months of 2013 averaged 907,000 (seasonally adjusted annual rate) and average U.S. housing prices have increased in each of the last 19 months through August. The U.S. economy still faces significant challenges. There are still too many unemployed workers, though some have reentered the workforce after having left; the financial and economic crises in Europe are improving, but several European countries remain in recession; China’s economy has slowed; and instead of implementing a coherent, growth-driven economic policy, the U.S. government is engaging in perilous brinkmanship.

Lumber and Log Prices. Lumber and log prices are up in 2013. The Random Lengths’ Coast Dry Random and Stud composite lumber price hit $414/mbf in April 2013, an impressive 44 percent year-over-year increase, before falling off steeply to $322/mbf in June. Predicted by forest economists, this drop was due to the uneven response of bringing lumber production back online and is interpreted as a temporary setback and not the beginning of a long-term downward price trend. August prices averaged $351/mbf, and there will be considerable price volatility moving forward. Pacific Northwest log prices have also moved up sharply after being fairly flat for 2011 and most all of 2012. The price for a ‘typical’ DNR log delivered to the mill climbed dramatically to a nominal high of $587/mbf in April, the highest price since 2000. The log price then fell a bit before climbing back to $568/mbf in October.

While there are downside risks to the demand-side influences of timber sales prices—and therefore to subsequent removal prices—there is also upside potential if the nascent recovery in the U.S. housing market strengthens sooner than anticipated. Supply-side influences of stumpage price—such as timber mix and quality—are difficult to estimate in future years, but are assumed to be about average. Also on the downside are the many challenges to U.S. economic recovery cited in the opening paragraph above.