BACKGROUND

I developed a suite of econometric simulation models to project the path of the U.S. economy and its forest product markets. I use these models to conduct policy experiments that try to measure how the U.S. forest products sector will develop under alternative monetary and fiscal policy pathways and how it would respond to unexpected business cycle fluctuations. This page displays baseline projections of consumption, production, and prices for select forest products under point forecasts from both: 1) a three-stage regression model of the U.S. economy, and 2) the "consensus" macroeconomic outlook (which I represent as the median outlook from a sample of forecasts published by various banks, industry groups, consultants, and public agencies). Please note that this page is subject to change as new data is released and as model specifications are refined. This material is currently provided for educational purposes only and should not be misconstrued as investment advice. I am working to provide interested readers with complete technical documentation that includes a full summary of statistical results, model diagnostics, and additional scenarios. If you have questions, thoughtful feedback, or are interested in supporting this ongoing analysis, please contact me at: djr.analytics@gmail.com. 

DATA AND MODEL

• Historical data on wood products trade and the U.S. economy from 1960-2025 was collected from public sources (see full list of sources in the table below). Data was primarily accessed from the FAOSTAT forest product statistics database and from FRED (the Federal Reserve Economic Database). 

• Forest products consumption and production are defined by groupings of national-level data in the FAOSTAT database. Prices are defined as averages of producer price indices defined in the BLS PPI reports. 

• Two macroeconomic scenarios were defined:

  1. The first scenario is the baseline forecast generated from a three-stage regression model of the U.S. economy. The three-stage model relates economic policy variables to subsequent outcomes in the real economy. It simultaneously allows for the impact of economic outcomes to influence subsequent economic policy responses. The resulting forecast from this endogenous system of equations is used to drive changes in both the financial sector and the housing sector in a subsequent system of dynamic equations. The resulting forecasts of these equations define the macroeconomic outlook for this scenario. 

  2. The second scenario, referred to as the "consensus outlook," is based on the median of forecasted macroeconomic variables published by various public and private sector sources (see full list of sources in the tables below). 

• The open source statistical software R was used to estimate economic relationships with standard econometric estimation routines installed (including vars, systemfit, forecast, and dynlm). 

• Forest products consumption, production, and prices were simulated 5,000 times under each macroeconomic scenario using Monte Carlo procedures written in R. Results in the tables below show the median forecast from these simulations.

KEY RESULTS (updated 2/4/2026)

MACROECONOMY

• The three-stage model produces a baseline forecast with higher inflation and higher unemployment than the scenario defined by the consensus outlook. This can be viewed as a "stagflationary" scenario relative to the consensus outlook, with sub-2% economic growth through 2027 and a gradual economic recovery from 2028 onward.

• Long term interest rates are projected to be higher under the baseline model. This is driven by higher inflation and expansionary fiscal policy. The effect of higher long term rates is a slowdown in the housing sector.

• Monetary policy, as measured by the federal funds rate, is forecasted to ease in the near term under the baseline model. However, it pivots to a restrictive policy path as inflation begins to exceed 3.5%/year by 2028. 

• Under the baseline model forecast, the federal debt averages 123% of GDP from 2026-2030 while annual deficits average 5% of GDP over this period.

WOOD PRODUCTS

• Higher mortgage rates forecasted under the baseline model lead to lower annual housing starts and lower domestic consumption of wood products typically used for home construction (including lumber, plywood, LVL, and OSB) compared to modeled consumption under the consensus macroeconomic outlook. The consumption of these products is especially sensitive to a higher inflation, higher mortgage rate environment.

• The baseline model forecast displays higher treasury yields and mortgage rates in 2026 than the consensus outlook. Mortgage rates under the baseline model forecast remain elevated and do not decline towards 6% by 2030 as they do under the consensus macroeconomic outlook. This leads to lower rates of annual softwood and hardwood sawnwood consumption. Hardwood sawnwood consumption is measured to be less sensitive to GDP growth and inflation compared to softwood sawnwood consumption.

• Higher mortgage rates and a corresponding slowdown in the housing sector can pull down the annual growth in softwood lumber, hardwood lumber, OSB, plywood, veneer sheets, and LVL consumption. A housing slowdown projected under the baseline model yields a 1.7%/year decline in softwood sawnwood prices and 2.3%/year decline in plywood/veneer prices through 2030. 

• Lower mortgage rates and greater annual housing starts under the consensus outlook raise the prices of softwood lumber, hardwood lumber, and plywood (relative to the baseline model forecast).

• Under the baseline model, there is estimated to be a 51% probability that annual softwood sawnwood consumption in 2026 is lower than it was in 2024 (which is the last year of observable data available from FAOSTAT). By 2030, this probability is 58% (however, it is only 15% under the consensus outlook).

• Under the baseline model, there is a 69% probability that the average softwood lumber price is lower in 2026 than it was in 2025. By 2030 this probability is 73% (however it is only 60% under the consensus macroeconomic outlook).

PULP/PAPER/PAPERBOARD PRODUCTS

• Annual packaging consumption is modeled to increase at a slower pace of 0.5%/year through 2030 under the baseline model, but expands 1.1%/year under the consensus macroeconomic outlook. 

• Paperboard prices are forecasted to decrease 0.2%/year through 2030 under the baseline model as a higher unemployment rate weighs on demand growth. Paperboard prices are modeled to grow by 0.9%/year under the consensus macroeconomic outlook. Supply expansions outweigh demand increases under the baseline forecast, leading to more consumption of packaging and paperboard products, but lower prices.

• Newsprint consumption is forecasted to be remain flat around 0.8-0.9 million tonnes/year under both the baseline model forecast and the consensus outlook. Newsprint prices decline by 0.6%/year under the baseline model forecast but decline 2.6%/year under the consensus macroeconomic outlook. This is a consequence of greater supply-side constraints and lower domestic production modeled under the baseline forecast.

• Under the baseline model, there is a 45% probability that annual wood pulp consumption in 2026 is lower than it was in 2024 (the last year of observable data available from FAOSTAT) and a 61% probability that the average wood pulp price is lower in 2026 than it was in 2025. By 2030, these probabilities are 36% and 49%, respectively.

TIMBER PRODUCTION

• Timber prices are forecasted to decline under the baseline model forecast (falling 0.3%/year through 2030). This represents slower price growth compared to what is modeled under the consensus macroeconomic outlook (increasing 1.0%/year through 2030). This is driven primarily by slower rates of price growth for both softwood and hardwood lumber as well as less demand for softwood sawtimber.

• The baseline model forecast produces a lower annual rate of domestic sawtimber production through 2030 (relative to modeled production under the consensus outlook). 

MANUFACTURING COSTS

• Unit costs of manufacturing in both the sawmill/wood preservation sectors and the pulp/paper/paperboard sectors are expected to increase through 2030. Machinery prices are forecasted to expand by 1.2%/year through 2030, while wage rates increase by less than 1%/year in all sectors through 2030.

TABLES AND FIGURES