Monday, July 22, 2013

Are lumber futures pointing to stabilization in residential construction?

Lumber futures turned out to be a good predictor of US housing starts. The large decline earlier this year (see post) translated into weaker than expected residential construction in June (see post). That means we should certainly pay close attention to lumber as a leading indicator. And July is showing a steady increase in prices, potentially pointing to improving demand.



After a disappointing result in June, is construction picking up this month ? Many economists think so. The key data that researchers point to is the Homebuilders' survey, which is at the highest levels since 2006.

Source: DB

The index had certainly diverged from housing starts in the past, but the combination of this survey and higher lumber prices may be pointing to an improvement in residential construction for July. The US economy could certainly use it.



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