Canada will benefit from U.S. recovery

Way back in 2006, all hell was breaking loose in Western Canada’s lumber industry — and not just because of the softwood lumber disagreement with the United States.

Big companies like Weyerhaeuser were closing pulp mills and sawmills, while smaller companies struggled mightily with a sagging market. Exports to the U.S., still Canada’s biggest lumber market, stalled.

That was the canary in the coal mine. Had American banks not been in a mess, the worst recession since the big Depression would not have happened, but conditions were already worsening two years before anyone really understood subprime mortgages.

Most people were either ignoring the signs or did not have enough information to forecast the coming disaster, apart from a couple of now-revered economists.

Well before 2008, people were not buying homes. Therefore, builders were not building homes. That’s where the rubber always hits the economic road, and the Canadian lumber industry’s collapse was there to provide a road sign.

The best indication, then, that the American economy is starting to show signs of life is housing starts — and lumber prices. Prices have risen 27 percent since the end of March to $300 US per 1,000 board feet for a particular kind of two-by-four.

Other lumber prices have risen 10 percent. Demand is high and supply is short because companies have reduced production capabilities.

Prices did spike in early 2011, but they headed right back down again. What’s different about the lumber price today is that it has been trending upward for months, since the autumn of 2011.

Now, U.S. housing starts are really starting to improve. They jumped 15 percent in September over August, and prices rose about five percent. You have to go back to early 2008 to find the same level of activity, although the peak came three years before that.

I doubt anyone is doing hand stands over the limping U.S. economic recovery just yet, but these are the strongest signs of an improvement in about five years.

Assuming new pressures don’t sink our biggest trading partner again, this is good news for the Canadian economy. It’s not great news for people who might have been considering buying property or other investments below the line. Expect to pay more in the coming months.