Thursday, April 29, 2021

"The Lumber and Chip Shortages Have the Same Root Cause: Underinvestment"

 From Matthew C. Klein at Barron's, April 27:

Perhaps no manufactured good is less technologically sophisticated than a 2×4, while none is more complex than the latest microprocessors. Yet the U.S. economy is currently suffering from shortages of both lumber and chips—and for similar reasons.

In both cases, today’s shortages are the legacy of past busts, which then led to years of underinvestment that has left producers unable to respond to sudden surges in demand.

Start with lumber, which is an essential material input for home building. Sawmills and other wood product manufacturers cut their production capacity by about a quarter after the housing bust. While investment has since recovered, productive capacity in March was still about 11% below the 2006 peak.


Until recently, that seemed like a sound business decision. Most lumber and other wood products are used for construction and furniture manufacturing—two industries that looked to be permanently smaller after the mortgage debt bubble popped. The number of single-family housing starts from 2017 to 2019 was about half what it was from 2003 to 2005. Despite the capacity cuts, the Federal Reserve estimates that sawmills and other wood product manufacturers were operating at about 78% of capacity in the years immediately preceding the pandemic, compared with 79% during the peak of the housing bubble. 

The problem—for both home builders and home buyers—is that the construction industry’s lost decade-plus ended so suddenly. Since July, Americans have bought about 79,000 new single-family homes each month, up roughly 50% from the recent pre-pandemic average—and the pace of purchases seems to be accelerating.

Even during the best of circumstances, builders would have struggled to meet that surge in demand, because construction takes time. That’s why the number of completed new homes available for sale has plunged to its lowest level ever. Builders have only been able to prevent overall inventory from collapsing by selling homes where construction hasn’t yet started....


REVIEW ESSAY Trade Wars Are Class Wars by Matthew C. Klein and Michael Pettis
Or last year's Barron's article that signaled a shift from his usual focus on the Federal Reserve:
Barron's Matthew C Klein Is Monitoring Inflation in Paper Towels and Cleaning Supplies

And dozens of visits with Mr. Klein during his time at FT Alphaville:
Questions Americans Are Asking: What Size Are Matthew Klein's Shoes?

Investment Banks As Marxist Paradise
I think I could learn to like this young Matthew Klein fellow....

Ooh, ooh: Matthew Klein on New York Fed Head Calling For More Cashout Refi

Expanding on and contextualizing Monday's "New York Fed Chief Dudley Has An Idea — Homeowners Should Tap Into Equity".
In Which FT Alphaville's Matthew Klein Flexes His Clickbait Muscles

Aaarrrggghhh: I Can't Get Matthew Klein's Song Out Of My Head
Leaving the office after posting "Pray For FT Alphaville's Matthew Klein" I found myself humming Jingle Bells à la Klein:
Rolling down the curve
With my Eurodollar strips
Making tons of money
‘til the Fed hikes 50 bps!
"The long history of dodgy art 'investing'"
We had two other art posts in the queue but this one is better than those.
Matthew Klein writing at FT Alphaville:...

 See also: 

The FT's Jamie Powell and Barron's Matthew Klein Both Do Cameos at Upfina: "ESG: Robots > Humans"
Ha! I'm beginning to think of the FT Alphaville peeps, current and former, as sort of like the Trilateral commission.
Or maybe the Illuminati.
Strategically embedded around the world to spread the doctrine of Alphavilleism.
And many more. Use the search blog box if interested.