Current recession will not be a replay of 2008: FEA

By Kelly McCloskey, Editor
The Tree Frog Forestry News
June 15, 2020
Category: Special Feature
Region: Canada, United States

Brendan Lowney

The following is a brief recap of two speakers at FEA’s Global Softwood Lumber Conference—the virtual version. First up, Brendan Lowney, FEA Principal, with a macroeconomic view of housing and lumber demand trends in North America.

Speaking on the overall US economy and given the COVID crisis, Lowney’s main takeaway is that the current recession will not be a replay of the 2008 recession and in fact, will play out quite differently. The main difference being the depth and speed at which the North American economy collapsed in 2020. According to Lowney, the US real GDP dropped 11.5% in the last two-quarters alone (compared to the last recession where output declined by 4% from peak-to-trough over five quarters) and he doesn’t expect the US economy to return to its 2019 Q4-level until the second half of 2022.

Another difference relates at how much “demand hesitation” has been created due to a fear of the virus. Although FEA is forecasting unemployment levels to fall to 10% by the end of 2020 and to 7% by the end of 2021, low restaurant and traveller activity suggest—notwithstanding government easing of restrictions—it will take time to fully recover.

Finally, Lowney notes the underlying strength of the current housing market from a supply and demand perspective. Notably, the fact that when the COVID recession arrived, the US was underbuilt by 3-4 million households, compared to being overbuilt by 2 million in 2008. Further, the government was much quicker to respond with low interest rates and fiscal support. Other factors supporting a strong housing recovery include the continued aging of the housing stock and the current elevated household-forming demographic of 30-35 year-olds.

As such, on an annualized basis, Lowney expects the second quarter housing trough to recover to about 1 million starts in May/June, rising to 1.12 million by year-end and just under 1.3 million in 2021. Housing starts should continue ticking upward, peaking in the 2023-25 period. Wood use in the R&R sector (e.g., doors, window, etc.), which has fared well during the shutdown is also expected to trend upward, as is the portion of the industrial sector that tracks closely with housing (e.g., doors, windows, etc.). Not expected to recover as quickly is wood use in the industrial sector more aligned with industrial manufacturing and exports (e.g., pallets, crates, etc.)

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