COVID-19 impacts on U.S. lumber markets

The Covid-19 pandemic led to an unprecedented increase in the U.S. price of softwood lumber by more than 300%. The reasons for this increase have been attributed to constraints on supply caused by pandemic-induced labor shortages, and increased demand for lumber caused by a Covid-19 related boom in domestic real estate and home improvements. In this paper, we examine the effect that these factors might have had on the increase in prices and the related changes in the welfare of U.S. lumber manufacturers and downstream users of lumber. We examine three cases where the demand function shifts outwards: (1) the lumber supply function remains unchanged; (2) the U.S. lumber supply function and that of its trading partners shifts inwards; and (3) U.S. lumber producers restrict output at its pre-Covid level. Overall, we find that U.S. producers gained between $0.7 and $8.0 billion per quarter as a result of the pandemic, while downstream processors gained $639 million. We argue, however, that the ultimate consumer of the downstream products that require lumber as an input (housing construction, furniture) might well be worse off as surplus lost as a result of reduced expenditures on commodities and services restricted by Covid-19 are not quite recovered when spending switches to lumber-related commodities.