Category Archives: Finance & Economics

Expectations of the Federal Reserve beginning the first in a series of rate reductions kept potential home buyers in a holding pattern in August. Sales of newly built, single-family homes in August fell 4.7% after an unusually strong July, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. August new home sales registered a 716,000 seasonally adjusted annual rate, after an upwardly revised estimate of 751,000 for July. Despite the slip in August, the three-month moving average for new home sales is at its highest level since March of 2022. New home sales are up 4% on a year-to-date basis through August. …While a 7.8 months’ supply may be considered elevated in normal market conditions, there is currently only a 4.1 months’ supply of existing single-family homes on the market. 

The US economy grew at a 3% annualized pace in the second quarter, a faster rate than Wall Street had expected. The Bureau of Economic Analysis’s third estimate of second quarter US gross domestic product (GDP) was unchanged from the second estimate which had shown 3% annualized growth. Economists had estimated the reading to show annualized growth of 2.9%. The third estimate for second quarter GDP confirms that economic growth was higher than the 1.4% annualized growth seen in the first quarter. “The revisions only strengthen our conviction that the US economy will continue to expand at a decent pace over the coming year, which suggests labor market conditions are unlikely to deteriorate markedly from here,” said Oxford Economics deputy chief economist Michael Pearce. Separately, data from the US Labor Department released Thursday showed 218,000 unemployment claims were filed in the week ending Sept. 21, below Wall Street’s expectations for 223,000.

Consumer confidence fell to a 3-month low in September due to growing concerns about the job market, despite the labor market remaining healthy. Recent job growth revisions showed fewer jobs were added in 2023 than initially reported. However, the unemployment rate remained at a relatively low level and wage growth continued to outpace inflation. This suggests the labor market is cooling from its red-hot pace but remains steady. The Consumer Confidence Index fell from 105.6 to 98.7 in September, the largest monthly decline since August 2021. The Consumer Confidence Index consists of two components: how consumers feel about their present situation and about their expected situation. The Present Situation Index decreased 10.3 points from 134.6 to 124.3, and the Expectation Situation Index fell 4.6 points from 86.3 to 81.7, but still remained above the 80 threshold. Historically, an Expectation Index reading below 80 often signals a recession within a year.

Home prices remain elevated but price growth continues to decelerate, according to the S&P CoreLogic Case-Shiller Home Price Index (HPI). The HPI (seasonally adjusted) reached its 14th monthly consecutive record high in July 2024. The index increased at a seasonally adjusted annual rate of 2.15%, down slightly from a revised June rate of 2.19%. This rate has slowed over the past six months, from a high of 6.53% in February 2024. The index has not seen an outright decrease since January of 2023 (nineteen months). Separately, the House Price Index released by the Federal Housing Finance Agency (FHFA; SA) posted its sixth monthly consecutive record high, after having decreased slightly in January of this year. The FHFA HPI recorded a 1.57% increase in July, upward from a revised 0.03% rate in June.

The SLB published its Q2 2024 Report, revealing the impact of both near-term investments and long-term vision for growing demand and expanding markets for lumber. The SLB and its funded programs are balancing these efforts to ensure our industry remains strong today and thrives for generations to come.

Key Q2 highlights include:

• 463 MM BF of incremental demand generated in Q2 
• A new Think Wood video and webinar continue to educate architects, engineers, and developers on the benefits of wood in office construction
• WoodWorks has supported 169 school projects since 2015, with a noticeable shift toward mass timber in recent years. 
• SLB Education expanded its faculty workshop initiative to hold five events in 2024. So far, 80 faculty members from 60 schools have participated
• The AWC made significant progress at a recent International Code Council hearing
• The winners of the SLB-funded National Council of Structural Engineers Associations (NCSEA) Wood Solutions Scholarship were announced

According to the National Interagency Coordination Center, in 2023, U.S. wildfires scorched nearly 2,700,000 acres nationally and destroyed 4,312 structures — 3,060 of which were private residences. This property damage, which the National Oceanic and Atmospheric Administration estimates totaled $9 billion, puts an undue burden on the property and casualty insurance market… Some state regulators have piled more onerous regulations onto insurers… These programs are “increasingly viewed as tools for promoting economic development.” However, history shows that these “insurers of last resort” are known to lose money, putting homeowners and taxpayers at risk for covering these losses… Even more troubling are federal proposals. Despite property insurance being primarily regulated at the state level and the health of the insurance market varying significantly from state to state, some policymakers have proposed national solutions to localized problems.

In 2023, 18.8% of all new single-family homes started were custom homes. This share decreased from the 20.4% recorded in 2022, according to data tabulated from the Census Bureau’s Survey of Construction. The custom home market consists of contractor-built and owner-built homes—homes built one at a time for owner occupancy on the owner’s land, with either the owner or a builder acting as a general contractor. The alternatives are homes built-for-sale and homes built-for-rent. In 2023, 71.5% of the single-family homes started were built-for-sale, and 9.7% were built-for-rent. At an 18.9% share, the number of custom homes started in 2023 was 177,850, falling from 207,472 in 2022.

The Federal Reserve’s interest rate cut last week has given prospective homebuyers something to celebrate: lower borrowing costs. …But while lower mortgage rates may translate to more buying power for homebuyers, America’s housing market woes aren’t likely to be solved solely by rate cuts. A shortage of homes for sale, combined with rising expenses like homeowners’ insurance and rent, have made the cost of both owning and renting a home in America increasingly unaffordable for many. …This shortage of homes has helped propel home prices to record highs. According to the National Association of Realtors, the median existing-home sales price was $416,700 in August, down slightly from the record high of $426,900 set in June. …There’s another reason: Many Americans bought homes in the years after the pandemic when rates were at historic lows. Many of those homeowners have been reluctant to sell and lose those cheap loans.

Yesterday’s policy action marks the beginning of a series of rate decreases necessary to normalize interest rates and to rebalance monetary policy risks between inflation (risks decreasing) and concerns regarding the health of the labor market (risks rising). The FOMC reduced its top target rate by 50 basis points from 5.5% (where it has been for more than a year) to a “still restrictive” 5%. …In its statement, the FOMC noted: “Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated.” …The central bank is forecasting a slowing economy but no recession in the coming quarters, with GDP growth rates of 2% for 2025 and 2026. The unemployment rate is expected to rise but average a nonetheless relatively low level of 4.4% in 2025.

Prices for inputs to new residential construction, excluding capital investment, labor and imports decreased 0.1% in August according to the most recent Producer Price Index (PPI) report published by the U.S. Bureau of Labor Statistics. Compared to a year ago, this index was up 0.8% in August after a 1.8% increase in July. The inputs to new residential construction price index can be broken into two components­—one for goods and another for services. The goods component increased 0.2% over the year, while services increased 1.9%. For comparison, the total final demand index increased 1.7% over the year in August, with final demand goods flat and final demand services up 2.6% over the year.

With mortgage rates declining by more than one-half of a percentage point from early August through mid-September, per Freddie Mac, builder sentiment edged higher this month even as builders continue to grapple with rising costs. Builder confidence in the market for newly built single-family homes was 41 in September, up two points from a reading of 39 in August, according to the NAHB/Wells Fargo Housing Market Index (HMI). This breaks a string of four consecutive monthly declines. Due to lower interest rates, builders now have a positive view for future new home sales for the first time since May 2024. …All three HMI indices were up in September. The index charting current sales conditions rose one point to 45, the component measuring sales expectations in the next six months increased four points to 53 and the gauge charting traffic of prospective buyers posted a two-point gain to 27.

Over the first seven months of 2024, the total number of single-family permits issued year-to-date (YTD) nationwide reached 599,308. On a year-over-year (YoY) basis, this is an increase of 13.7% over the July 2023 level of 527,158. Year-to-date ending in July, single-family permits were up in all four regions. The range of permit increases spanned 18.2% in the West to 9.8% in the Northeast. The Midwest was up by 14.5% and the South was up by 12.4% in single-family permits during this time. For multifamily permits, three out of the four regions posted declines. The Northeast, driven by New York was the only region to post an increase and was up by 32.0%. Meanwhile, the West posted a decline of 31.2%, the South declined by 22.7%, and the Midwest declined by 9.3%.

US housing starts bounced back in August after tumbling a month earlier, illustrating uneven residential construction as builders weigh inventory levels against brighter demand prospects tied to falling borrowing costs. Beginning home construction increased 9.6% last month to a 1.36 million annualized rate, the fastest since April, according to government figures released Wednesday. The median estimate of economists surveyed by Bloomberg called for a 1.32 million rate. The report showed overall building permits, a gauge of future construction, rose 5% to a 1.48 million annualized rate, while single-family authorizations increased to a four-month high. New construction of single-family homes increased nearly 16% to an annualized 992,000 pace, the first monthly advance since February. Starts of multifamily projects declined for the first time since May. Builders are awaiting a sustained pickup in demand to help work down an inventory of unsold homes that’s hovering near the highest level since 2008.

The Federal Reserve (Fed), the US central bank, will be in the spotlight on Wednesday, 18 September at 6:00 p.m. UTC, as they announce their latest interest rate decision. The Fed has kept its federal funds rate (FFR) unchanged for over a year. It last raised its base rate in July 2023, citing inflationary pressures. In the current environment of lower inflation and increased concerns about the labour market, reducing the interest rate is possible. According to Reuters, most economists expect the Fed to cut the key rate by at least 25 basis points (bps). Octa analysts believe that the stock market may perceive a 25 bps reduction in the interest rate negatively, and they are clearly expecting a more significant decline. Octa analysts do not expect an interest rate change of more than 25 bps at the upcoming meeting but believe that a rate cut of 50 bps is possible.

Wood products markets are still a grind for almost all product lines. The LVL market is lackluster, so the takeaway for density-graded veneers has slowed considerably. Plywood sales prices improved slightly over the last couple of weeks and sales volumes are consistent… US wood products market conditions shouldn’t come as a surprise considering the ISM (Institute for Supply Management) Manufacturing PMI (Purchasing Managers Index), which is an indicator of expansion or contraction in US manufacturing,  has indicated 21 monthly declines out of the last 22 periods. Manufacturing in the US is further impacted by the strength of the US dollar, which is currently at a 20-year high when compared to a basket of currencies from major trading partners.

The pulp, paper and packaging sector is often seen as staid and deeply cyclical. However, despite its seemingly unremarkable nature, medium to long-term earnings are trending upwards and global investor interest is on the rise. The packaging industry, valued at about US$1 trillion, is under increasing pressure due to concerns about waste, climate change, and sustainability. With food and beverages representing over 43% of the global packaging market and other consumer products accounting for 15%, global packaging demand is driven largely by shifts in consumer behaviour and preferences. Consequently, regulators are acting, and consumer goods companies and retailers are committing to improve the sustainability of their packaging. This shift, combined with the rise of e-commerce, is driving growth in wood-based consumer and industrial products.

Inflation eased further in August, reaching a new 3-year low despite persistent elevated housing costs. This inflation report is seen as the final key piece of data before the Fed’s meeting next week. The headline reading provides another dovish signal for future monetary policy, after recent signs of weakness in job reports. Although shelter costs have been trending downward since peaking in early 2023, they continue to exert significant upward pressure on inflation, contributing over 70% of the total 12-month increase in core inflation. As consistent disinflation and a cooling labor market bring the economy into better balance, the Fed is likely to further solidify behind the case for rate cuts, which could help ease some pressure on the housing market.

Due to slowing home construction and elevated interest rates, the count of open construction sector jobs continued to decline in July, per the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey. However, this shift lower is also consistent with a cooler overall labor market, which is a positive sign for future inflation readings and the interest rate outlook. In July, after revisions, the number of open jobs for the overall economy decreased slightly from 7.91 million to 7.67 million. This is notably smaller than the 8.81 million estimate reported a year ago. Previous NAHB analysis indicated that this number had to fall below 8 million on a sustained basis for the Federal Reserve to feel more comfortable about labor market conditions and their potential impacts on inflation. With estimates now measurably below 8 million, interest rate cuts from the Federal Reserve are at hand.

While the economy, immigration and abortion continue to grab major headlines, politicians should understand that the biggest concern for most Americans in this election season is the housing affordability crisis. And for good reason — Housing is by far the largest single expense for American households, and rising costs are putting the nation in an untenable situation. A 2024 report by Harvard’s Joint Center for Housing Studies found that a record-high 22.4 million households are paying more than 30% of their income on rent, and, among those renters, more than 12 million are paying more than half their income on housing, also an all-time high. …The Biden administration should eliminate tariffs on Canadian lumber imports that act as a tax on American homebuyers and oppose restrictive, costly and mandatory national energy code proposals that will raise housing costs while providing little energy savings to consumers.

Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2024, according to the “second” estimate released by the U.S. Bureau of Economic Analysis. In the first quarter, real GDP increased 1.4 percent. The GDP estimate is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 2.8%. …The increase in real GDP primarily reflected increases in consumer spending, private inventory investment, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased. Compared to the first quarter, the acceleration in real GDP in the second quarter primarily reflected an upturn in private inventory investment and an acceleration in consumer spending. 

Home price growth continues to decelerate, according to the S&P CoreLogic Case-Shiller Home Price Index (HPI). The HPI increased at a seasonally adjusted annual rate of 1.89% for June 2024, slowing from a revised rate of 3.28% in May. Home prices have not seen an outright decrease since January of 2023. However, 1.89% is the smallest growth in prices since February of 2023. Additionally, the growth rate has shown a generally declining trend since a peak of 9.76% in August 2023. Meanwhile, the Home Price Index released by the Federal Housing Finance Agency, recorded a decline in home prices for June. The index declined at an annual rate of -1.04% for June, decreasing from a revised 0.51% rate in May. The FHFA Index has experienced just one other decrease since August of 2022, with a decline of -1.03% in January 2024.