Take a look at lumber prices. In the days of traditional monetary policy in a normal economy, the Fed would lower interest rates and the construction sector would lead the economy out of recession. Lumber prices were a leading indicator.
Lumber is starting to awake from its slumber as the chart shows and the housing stocks are also perking up. Could be a head fake, but it is another piece of an improving economic puzzle.
Many will attribute the rise in lumber to China buying, but according to the Daily News Online “U.S. lumber exported to China is only 1 percent of the total Western U.S. production.” There is no doubt, however, China is helping lift the market as exports have more than doubled on a small base, largely because a new Russian tariff has made U.S and Canadian logs more competitive.
Whatever the case, we believe the lumber rally and rebound in housing stocks, though modest after a long decline, is a positive leading indicator for the U.S. economy. We have also included a chart showing the historical correlation between lumber prices and employment.