Domestic Sawmill Output Continues to Lag Home Construction

With an historically low level of overall housing inventory and solid demand because of low mortgage interest rates and favorable demographics, new construction has been unable to add needed supply to the market because domestic production from the sawmill industry has not kept pace with home construction gains since mid-2020, resulting in unsustainable gains for home prices.

The sawmill industry has cited labor challenges, a limiting factor for the overall economy in both the manufacturing and construction sectors, as one reason. However, Bureau of Labor Statistics data indicate that sawmill industry employment is higher than a year ago. As of October 2021 — the most recent data available — sawmill employment was 90,100. This is a 2.4% increase from October 2020, or a net gain of 2,100 jobs. Residential construction employment was up 4%, or 118,500 net jobs, over the same period.

With the increase in workers, sawmill output did increase over the 12 months ending September 2021, albeit along a choppy trend. Data from the Bureau of Economic Analysis demonstrate that the seasonally adjusted rate of sawmill output in September 2021 — the most recent available — was 1.2% higher than in September 2020. However, output in the third quarter of 2021 was 1.3% lower than it was in during the same quarter in 2020.

Total sawmill output in 2020 was up 3.3% compared to 2019 because of a year-end upswing in production. This uptick continued over the first nine months of 2021; output through September was 3.1% higher than it was over the same period in 2020. Compared to 2019, however, output was just 1.6% higher.

The 2020 increase in output was insufficient to keep up with the demand from residential construction; and this remained the case in 2021. The graph above shows single-family starts (red) and sawmill output (blue) indexed so that 2012 levels equal 100. The growing gap between the two measures, particularly in 2020, is the reason for the dramatic increase in lumber prices. This impact on price can be seen by adding an indexed measure of the Random Lengths Framing Lumber Composite Price, noted in black.

David Logan, NAHB’s director of tax and trade policy analysis, explains more in this Eye on Housing post.