Category Archives: Finance & Economics

The American Forest & Paper Association (AF&PA) has released its October 2022 Printing-Writing Monthly report. According to the report, total printing-writing paper shipments decreased 4% in October compared to October 2021. U.S. purchases of total printing-writing papers increased 6% in October compared to the same month last year. Total printing-writing paper inventory levels increased 1% when compared to September 2022.

• U.S. purchases of uncoated free sheet (UFS) papers in October increased 7% compared to last October
• Coated free sheet (CFS) paper shipments increased 1%
• U.S. purchases of coated mechanical (CM) papers in October remained essentially flat 
• Uncoated mechanical (UM) paper shipments decreased 22%

According to NAHB analysis of the most recent Census data of Starts and Completions by Purpose and Design, during the third quarter of 2022 single-family attached starts totaled 38,000, which is 12% higher than the third quarter of 2021. Over the last four quarters, townhouse construction starts totaled 152,000 units, 7% higher than the prior four quarter total (142,000). However, these counts will soften in the quarters ahead as the overall building market slows. Using a one-year moving average, the market share of newly-built townhouses increased to 14% of all single-family starts. As denser areas reopened following covid later, the townhouse market rebounded later. Moreover, as the spec single-family building market slows on higher interest rates, the townhouse construction market share will rise.

The best way to fight inflation is to add more supply. …In previous expansions, builders’ housing completion data would move in line with housing starts and permits. However, for the first time in recent modern-day history — due to supply chain issues and other factors — housing completion data has lagged behind housing permits and starts. It simply has taken too long to build homes to full completion over the last several years. …With that said, we all need to hope that the builders can get the wave of multifamily construction onto the market for next year to drive rent inflation lower and lower. That will be a plus for mortgage rates, which can get us out of the housing recession. As you can see from today’s report, we aren’t there yet, but we have the supply coming!

Total construction starts rose 8 percent in October to a seasonally adjusted annual rate of $1.12 trillion, according to Dodge Construction Network. In October, nonresidential building starts gained 9 percent and nonbuilding starts rose 26 percent. Residential starts fell 3 percent for the month. Year-to-date, total construction was 16 percent higher than in the first 10 months of 2021. Nonresidential building starts rose 37 percent January-October 2022, residential starts remained flat and nonbuilding starts were up 17 percent in that time. “October’s gain in construction starts is a further sign that the construction sector continues to weather the storm of higher interest rates,” says Richard Branch. “While the residential sector is feeling the pain, the nonresidential building and infrastructure sectors are hitting their stride. Some weakness is to be expected as the Federal Reserve continues its battle with inflation; however.”

Elevated interest rates, stubbornly high building material costs and declining affordability conditions that are pushing more buyers to the sidelines continue to drag down builder sentiment. Builder confidence in the market for newly built single-family homes posted its 11th straight monthly decline in November, dropping five points to 33, according to the NAHB/Wells Fargo Housing Market Index (HMI). This is the lowest confidence reading since June 2012, with the exception of the onset of the pandemic in the spring of 2020. …All three HMI components posted declines in November. Current sales conditions fell six points to 39, sales expectations in the next six months declined four points to 31 and traffic of prospective buyers fell five points to 20.

Elevated mortgage rates, high construction costs for concrete and other building materials, and weakening demand stemming from deteriorating affordability conditions continue to act as a drag on single-family housing production. Overall housing starts decreased 4.2% to a seasonally adjusted annual rate of 1.43 million units in October. …Within this overall number, single-family starts decreased 6.1% to an 855,000 seasonally adjusted annual rate. Year-to-date, single-family starts are down 7.1%. …This will be the first year since 2011 to post a calendar year decline for single-family starts. We are forecasting additional declines for single-family construction in 2023, which means economic slowing will expand from the residential construction market into the rest of the economy. Home prices are now falling, and there has not been a period in recent decades during which homes prices have declined and a recession has not occurred.

US forest industry performance in September and October was recently reported by both the US government and the Institute for Supply Management.  Total industrial production (IP) increased 0.4% in September (+5.3% YoY), and at a +2.9% annual rate during 3Q. Manufacturing output rose 0.4% after advancing a similar amount in August (revised from +0.1%). …The consumer price index (CPI) rose 0.4% in September (+8.2% YoY) after +0.1% in August. Meanwhile, the producer price index (PPI) increased 0.4% (+8.5% YoY), turning around a 0.2% decline in August and -0.4% in July. …Price index performance in the forest products sector specifically included: 

• Pulp, paper & allied products: – 0.2% (+13.0% YoY)
• Lumber & wood products: -2.1% (+10.2% YoY)
• Softwood lumber: -4.6% (+14.5% YoY)
• Wood fiber: -0.3% (+4.5% YoY)

The prices of building materials decreased 0.2% in October (not seasonally adjusted) following a 0.5% decline in September according to the latest Producer Price Index (PPI) report. The index has decreased four of five months for the first time since 2015. …The PPI for softwood lumber (seasonally adjusted) fell 1.7% in October following 5.5% and 3.1% declines in August and September, respectively. Softwood lumber prices are 4.4% higher than they were a year ago but have fallen 41.3% since March. …Steel mill products prices decreased 6.6% in October and have fallen 21.6% since May 2022. …The PPI for ready-mix concrete increased 0.4% in October but the pace of increases has slowed each of the past three months. ..The PPI for gypsum building materials edged 0.2% lower in October—just the second monthly decrease since September 2020. …Trucking freight prices fell 1.4%–the fifth consecutive decline—while the indexes for rail and deep sea transportation of freight decreased 0.7% and 1.8%, respectively.

The beginning of November brought a slight firming up for lumber prices, due to recent sawmills curtailments – especially in British Columbia – and ongoing reasonable sales volumes. Customers found inventories quite scarce thus had to come back to producers for their purchases. As the usual seasonal slowdown is upon us, and lumber demand historically starts to wane at this time of year, sawmills start to plan for lowering manufacturing volumes into the winter and year end. …In the week ending November 4, 2022, the price of benchmark softwood lumber item Western Spruce-Pine-Fir 2×4 #2&Btr KD (RL) was US$490 mfbm. This is up by +$10 or +2% from the previous week when it was $480, and is up by +$28, or +6%, from one month ago when it was $463.

Over the first nine months of 2022, the total number of single-family permits issued year-to-date (YTD) nationwide reached 800,424. On a year-over-year (YoY) basis, this is 7.4% below the September 2021 level of 864,184. Year-to-date ending in September, single-family permits declined in all four regions. The South posted a modest decline of 5.4%, while the Midwest region reported the steepest decline of 11.0%. The Northeast declined by 8.6% and the Western region reported an 10.0% decline in single-family permits during this time. On the other hand, multifamily permits posted increased in all four regions. Permits were 24.4% higher in the South, 22.5% higher in the Midwest, 11.3% higher in the West, and 6.0% higher in the Northeast.

Home Depot reported Tuesday its third-quarter revenue increased nearly 6% to $38.9 billion, beating analyst expectations, as the retailer continued to beckon customers despite rising costs and macroeconomic pressures.  Both its professional and do-it-yourself sales saw positive growth during the period, the retailer’s management said on a call with investors, adding professionals say their backlogs remain strong. …“We’re navigating a unique environment,” Home Depot CEO Ted Decker said on Tuesday’s call with investors. “We can’t predict how the macroeconomic backdrop will affect customers going forward.” Despite this, he added the company believes demand will remain strong, especially as consumers continue to stay home more than usual. The typical Home Depot customer is still able to afford home improvement projects, he said.

Consumer prices in October saw the smallest year-over-year gain since January 2022, and while still elevated, inflation experienced the first month below an 8% annual growth rate since February 2022. However, the shelter index continued to rise at an accelerated pace and the energy index increased after declining for three straight months. As inflation appears to have peaked and has started to slow, this may ease some of pressure on the Fed to maintain its aggressive monetary policy.The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose by 0.4% in October on a seasonally adjusted basis, following the same increase in September. …The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.8% in October, following an increase of 0.7% in September. This is the largest monthly increase since August 1990.

Rising mortgage rates, high inflation, ongoing building material supply chain disruptions, and elevated home prices contributed to housing affordability falling – yet again – to its lowest point since the Great Recession in the third quarter of 2022. According to the NAHB/Wells Fargo Housing Opportunity Index, just 42.2% of new and existing homes sold between the beginning of July and end of September were affordable to families earning the U.S. median income of $90,000. This marks the second consecutive record low for housing affordability in more than a decade, trailing the previous mark of 42.8% set in the second quarter.

As Republicans and Democrats wrestle for control of the House and Senate after Tuesday’s vote, the atmosphere is subdued on Wall Street. Neither party gained obvious control of the Capitol, and the market traded nearly unchanged ahead of the opening bell. It’s unclear whether we’ll know today which party triumphed, and uncertainty doesn’t play to Wall Street’s strengths. …Predictions of a “red wave” didn’t seem to materialize overnight despite expectations of its likelihood. …The most likely outcome still appears to be market-friendly gridlock in Washington, though it may be a while until we know who controls the Senate due to a possible run-off election in Georgia. Wall Street tends to like it when things don’t get done in Washington, and is particularly sensitive now to any emerging fiscal policies that might blunt the Federal Reserve’s attempts to slow the economy.

US lumber futures continued to fall over the past few months as weakening housing markets in major economies amid rising interest rates pressured raw material prices. …The November random length lumber contract traded on the Chicago Mercantile Exchange (CME) settled at $451.10 per thousand board feet (bft) on 8 November, up 0.2% from the previous month and a fall of 27.5% year-on-year. …Analysts were mixed about the outlook for lumber futures in the next one to five years. …Trading Economics, as of 9 November, expected lumber futures to trade at $434.02/bft by the end of the fourth quarter, falling to $367.45 in the next 12 months. In contrast, Wallet Investor, as of 9 November, predicted the average lumber prices to rise to $577.511 in the next 12 months and double to $1,122.83 in five years’ time.

According to our most recent survey of residential furniture manufacturers and distributors, net new orders were again down substantially in August 2022 compared to August 2021, down 34%, while August 2021 orders were down 14% vs August 2020. Orders were down for 84% of the participants. …Year to date, orders were down 29% from the first 8 months of 2021, but year to date orders in August 2021, were up 29% over the first 8 months of 2020. …Shipments were up 9% over August 2021 and up for 72% of the participants. Year to date, shipments remained up 6% over the first 8 months of 2021, when shipments were up 34% over the first 8 months of 2020. Year to date, shipments were up for 70% of the participants.

The U.S. exported 766,508.2 metric tons of wood pellets in September, down from 880,876 metric tons the previous month, but up from 690,514.5 metric tons in September 2021, according to the USDA on Nov. 3. The U.S. exported wood pellets to approximately one dozen countries in September. The U.K. was the top destination for U.S. wood pellet exports at 459,203.7 metric tons, followed by Denmark at 120,703.2 metric tons, Japan at 67,797 metric tons, the Netherlands at 64,664.3 metric tons and Belgium-Luxembourg at 48,392.9 metric tons. The value of U.S. wood pellet exports was at $136.9 million in September, down from $150.74 million in August, but up from $101.96 million in September of last year. Total wood pellet exports for the first nine months of 2022 reached 6.61 million metric tons at a value of $1.14 billion.

NAHB analysis of information published in Builder Magazine’s annual Local Leaders lists shows that large builders gained market share across all tiers on average from 2009 to 2021 in major housing markets; and market concentration, as calculated with top four firms in a metropolitan statistical area (MSA), also increased, but has leveled off over the last four years. …All four percentages have increased since the trough of the Great Recession (Dec 2007 – June 2009). The four firm concentration ratio started at 30.1% in 2009, peaked in 2020 at 43.7%, and declined slightly to 43.0% in 2021. The large national builders grew their market shares from 30.5% in 2009 to its current peak of 48.4% in 2021. The market share for all national builders went up from 33.8% in 2009 to its current peak of 53.6% in 2021. National and regional builders increased their collective market share on average from 37.3% in 2009 to its peak of 57.5% in 2021.

Soaring US interest rates have done little to curb inflation, but they’re hitting housing hard. The surge in borrowing costs has eroded affordability for buyers, slowing residential sales and building activity, and threatening economic growth. Home sales and housing starts have slumped after peaking during the first couple of years of the Covid-19 pandemic, when low borrowing costs allowed millions to relocate. Housing downturns ripple through the economy. Real estate and construction account for millions of US jobs, and home sales have historically been a driver of consumer spending. For many Americans a home is their biggest asset, so falling values can hurt confidence and spending. Prices have begun to roll over after a huge runup, but a crash isn’t inevitable. Many owners took advantage of low rates to refinance and may stay put. That could keep inventory low, helping support prices.

The Federal Reserve raised the federal funds target rate by 75 basis points, increasing that target to an upper bound of 4%. This marks the fourth consecutive increase of 75 basis points and pushes the fed funds rate to a 15-year high. These supersized hikes were intended to move monetary policy more rapidly to restrictive policy rates. The Fed’s leadership has previously signaled they intend to hold these restrictive rates for a substantial period time, perhaps into 2024. Importantly, the November policy statement also contained hints of a pivot to a slower rate of hikes in the future. …This verbiage indicates the Fed will adjust its future actions based on expected lags with already implemented tightening and will respond to additional signs of a slowing economy. …This is a positive development for housing because the current risk for Fed policy is of tightening too much and bringing on a more severe recession or a financial crisis.