A lumber price surge threatens to crush Biden’s economic agenda

A lumber price surge threatens to crush Biden’s economic agenda

WASHINGTON — If a tree falls in a Canadian forest and a logger has to drive 16 hours to haul it out, does it crush the U.S. president’s economic agenda?

That improbable question may be on the minds of some in Washington as skyrocketing prices of lumber to used cars to corn seed have emerged as troubling signs for the post-pandemic economic boom President Joe Biden and congressional Democrats are counting on to keep them in power.

Consumer demand is shooting up as some Covid-19 restrictions fall. But the supply chain has had trouble keeping up, pushing prices higher and leading to shortages.

Government data from April showed disappointing job growth and an unexpected jump in consumer prices. Basic commodities like copper and iron ore are at all-time highs; gas prices are over $3 a gallon, and analysts were warning of gas shortages even before the recent dayslong shutdown of a key pipeline; and a scarcity of computer chips has forced manufacturers to halt the production of cars, home appliances and more.

Add it all up and some economists, like Clinton administration Treasury Secretary Larry Summers, worry that the country is about to experience its first real bout of rapid inflation since the 1970s, when swelling costs undercut the value of peoples’ wages and savings — and helped bring down President Jimmy Carter.

“Inflation is the kryptonite of American politics,” Democratic strategist Chris Kofinis said. “It doesn’t matter which party you are. It destroys you.”

So far, the price hikes are isolated mostly to specific industries. Lumber this month hit an all-time high of $1,686 per thousand board feet, having surged by 406 percent from the $333 per thousand board feet it was trading at the same time a year ago and by 438 percent from its price five years ago.

Just as the country is coming out of the woods of the pandemic, it is running out of wood. Prices have tripled, and some builders are having trouble finding any at all. Lowly plywood is so valuable that workers keep it under lock and key after a raft of thefts.

In the forests of British Columbia, which supplies much of America’s two-by-fours, logger Chace Barber has been feeding the seemingly insatiable demand by driving up to 16 hours to fetch logs he wouldn’t have even bothered with when prices were lower.

“I can’t find a log trailer for sale anywhere. I’ve got two trucks I want to get hauling, and I can’t find a trailer anywhere. You talk to the manufacturer and they say there’s a year-and-a-half wait,” he said. “And you can’t find log truck drivers. Everyone who can and wants to drive a log truck is already driving a log truck.”

Image: A customer loads lumber at Home Depot (David Paul Morris / Bloomberg via Getty Images file)

Image: A customer loads lumber at Home Depot (David Paul Morris / Bloomberg via Getty Images file)

Barber, who has become something of a timber influencer with over 300,000 followers on TikTok, has seen a surge of interest in the industry, with a growing number of people asking him how to break in, even though he cautions that the lumber windfall isn’t really trickling down to workers.

At the other end of the supply chain, builders have had to deal with surging costs and unreliable supplies that they say now add as much as $36,000 to the price of a new home.

Home prices were already on the rise because of a longstanding housing shortage — there are fewer homes for sale now than there have been in decades — and on top of lumber, things like garage doors, insulation and windows have also risen in price or are on weekslong back order as manufacturers catch up with booming demand.

“The fact is if this continues, you will see the homebuilding sector slow down and grind to a halt,” said Jerry Howard, CEO of the National Association of Homebuilders, who said housing is often a leading indicator of economic health. “This problem with lumber and other building material costs is sort of setting another potential perfect storm for housing to lead us into a recession.”

Lumber’s unprecedented price surge can be chalked up to a number of issues specific to the industry.

Construction never really recovered after the Great Recession over a decade ago, so the supply chain shrunk its capacity. Add a beetle infestation in British Columbia, European producers’ selling to China and tariffs that former President Donald Trump implemented on some Canadian wood.

Then, early in the pandemic, lumber producers cut production on what turned out to be an erroneous assumption that building would halt with the rest of the economy. Instead, consumers stuck at home went on home improvement binges, while others decided to move to new homes, because they were free to work remotely.

Image: Lumber is transported in Colorado (Hyoung Chang / Denver Post via Getty Images file)

Image: Lumber is transported in Colorado (Hyoung Chang / Denver Post via Getty Images file)

“Covid added additional fuel to an already existing inferno,” said Thom Rafferty, a commodity trader at Millbrook Lumber Inc. outside Boston. “It has nothing to do with inflation.”

At a congressional hearing this month, Commerce Secretary Gina Raimondo said she would make lumber prices a top priority.

Builders and others want Biden to eliminate Trump’s tariff on Canadian wood, which was reduced from 20 percent to 9 percent in the final months of his presidency.

“The reality is that record high lumber prices are putting the American dream of homeownership out of reach for hundreds of thousands of potential homebuyers,” Sen. Jerry Moran, R-Kan., said on the Senate floor last week. “American homebuyers, not Canadian lumber producers, are the ones who end up paying the cost.”

For now, most economists, including those at the Federal Reserve, think the price hikes are just temporary quirks of the economy’s getting its idled engines back into gear.

Like the Great Toilet Paper Shortage of 2020, they hope it will come and go without really signifying anything greater. But no one knows for sure, and so many of the economic impacts of Covid-19 have been unpredictable.

“We’ve had a very unusual hit to our economy,” Treasury Secretary Janet Yellen told reporters at the White House this month. “Starting up an economy again, trying to get it back on track after a pandemic in which there are a lot of supply bottlenecks, is going to be, I think, a bumpy process.”

Biden is counting on a robust economic recovery to keep his popularity and his agenda alive as he tries to push through his massive infrastructure package, which would partly be paid for with tax increases. And Democrats in both houses of Congress hope a strong economy will help them hang onto their narrow majorities in next year’s elections by overcoming the historical trend in which a president’s party typically loses seats in the first midterms.

But Republicans have already sought to make hay of the rising costs to argue against Biden’s infrastructure plan.

“You’re watching food costs go up. You’re watching housing costs, lumber costs. There is inflation everywhere,” House Minority Leader Kevin McCarthy, R-Calif., said after a meeting with Biden at the White House on Wednesday. “So raising taxes would be the biggest mistake you could make.”

Meanwhile, some, like Melissa Miller, 38, of Saginaw, Michigan, already feel a pinch at the grocery store.

“The food prices are going to kill us,” she said. “It’s do or die.”

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