Throughout U.S. history, recessions and the cost of lumber have borne striking correlations.

In the last 25 years, we have witnessed how an economic downturn can directly affect the lumber industry.

In this article, we will dive into the historical effects recessions have played on lumber prices and discuss whether current lumber prices indicate a looming recession. 

The Correlation Between Lumber Prices and Recessions Over the Past 25 Years

Over the past 25 years, there has been a strong correlation between lumber prices and recessions. During economic downturns, the demand for new homes and construction projects decreases, leading to a decrease in the demand for lumber. As supply begins to exceed demand, the price of lumber begins to decline.

Let’s take a closer look at the relationship between lumber prices and recessions over the past 25 years.

The Dot-Bomb Recession: March 2001 – November 2001

The correlation between lumber prices and the Dot Bomb Recession highlights the interdependence of different sectors of the economy and how a slowdown in one industry can have ripple effects throughout the entire economy.

As the economy began to slow, demand for new construction decreased, leading to a decrease in lumber prices. Additionally, the recession led to a decrease in consumer spending, which further reduced demand for lumber products. As a result, lumber prices fell sharply during this period.

The Great Recession: December 2007 – June 2009

Lumber prices also played a significant role in the Great Recession of 2008. The housing market was a key driver of the US economy prior to the recession, and as the market began to collapse, demand for lumber and other building materials plummeted. This led to a significant decrease in lumber prices, which in turn contributed to job losses and a decline in economic activity across the industry. 

Additionally, the subprime mortgage crisis, which was one of the main drivers of the recession, led to a decrease in consumer spending and a decline in new home construction. As a result, lumber prices remained low for several years following the recession.

The COVID-19 Recession: February 2020 – April 2020

The correlation between the COVID-19 recession and lumber prices highlights the complex and unique effect a global pandemic has had on supply chains and materials. Unlike previous recessions, the cost of lumber increased during the COVID-19 Recession.

As people around the world were forced to stay at home due to lockdowns and travel restrictions, many began investing in home improvement projects, leading to an increase in demand for lumber and other building materials. In 2020, Houzz, an online home remodeling platform, reported a 58% increase in home renovation projects.

At the same time, many sawmills and lumber yards were forced to close or operate at reduced capacity due to COVID-19 safety protocols, creating supply chain disruptions and shortages. 

These factors, combined with increased demand, led to a significant increase in lumber prices in 2020-2022.

Do Current Lumber Costs Mean a Recession Is on the Horizon? 

It is difficult to predict whether current lumber prices indicate a potential recession. While lumber prices are often seen as a leading indicator of the health of the housing and construction industries, they are just one of many factors that can influence the economy.

It is important to remember that lumber prices are subject to fluctuations due to a variety of factors, such as supply chain disruptions, natural disasters, and changes in demand. The recent decline in lumber prices may indicate that the supply and demand for lumber have reached a temporary balance, rather than a harbinger of a recession.

However, if other economic indicators, such as employment rates, consumer spending, and inflation, begin to show signs of decline, then it may be reasonable to predict a recession.

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