Economic Projections and Simulations

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 measure how the U.S. forest products sector might develop under alternative monetary and fiscal policy pathways and how it may respond to unexpected business cycle fluctuations. This page displays conditional forecasts of consumption, production, and prices for select forest products under two alternative macroeconomic scenarios. The scenarios are: 1) the forecast from a three-stage regression model of the U.S. economy, and 2) the median macroeconomic outlook (which I obtain 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 This material has not been peer-reviewed. It 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 annual 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 first-stage of the model relates economic policy variables to subsequent outcomes in the real economy. It simultaneously allows for the impact of economic outcomes to influence subsequent policy responses. Bayesian simulation with hierarchical prior selection is used to estimate the first-stage macroeconomic relationships. Each forecast from a first-stage simulation is then used in both a second-stage system of dynamic equations describing the financial sector and a third-stage system of dynamic equations describing the housing sector. The resulting means of the simulated forecasts define the macroeconomic outlook for this scenario. 

  2. The second scenario, referred to as the "median 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). 

• Reduced form equations of forest products consumption, production, and prices are estimated and used to generate conditional forecasts.

• The open source statistical software R was used to estimate economic relationships with standard econometric estimation routines installed (including BVAR, 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 May 27, 2026. 

MACROECONOMY

• The three-stage model produces a baseline forecast with higher inflation than the median outlook, but with similar rates of unemployment and economic growth. 

• Long term interest rates are higher under the baseline forecast. 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 forecast to remain steady in the near term under the baseline forecast. However, it pivots to a restrictive policy path as inflation begins to exceed 3.25%/year by 2028. 

• Monetary policy under the median outlook is reported as the futures market's expectation of the federal funds rate through 2027 (as reported by CME's Fedwatch tool on May 22, 2026). From 2028-2030, the federal funds rate in this scenario changes according to the annual pace of the median forecast.

• Under the baseline forecast, the total federal debt expands to 124% of GDP by 2030, while annual federal deficits remain above 5% of GDP. This fiscal expansion is the primary source of inflation in the baseline forecast.

LUMBER & PANEL MARKETS

• Higher mortgage rates forecast under the baseline forecast 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 median outlook. The consumption of these products is especially sensitive to a higher inflation, higher mortgage rate environment.

• Hardwood sawnwood consumption is measured to be less sensitive to GDP growth and inflation compared to softwood sawnwood consumption.

• The housing slowdown projected under the baseline forecast yields a 4.5%/year decline in softwood sawnwood prices and a 2.3%/year decline in plywood/veneer prices through 2030. 

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

• Despite a slower housing sector under the baseline forecast, millwork prices and hardwood lumber prices are still projected to expand due to a higher sensitivity to rising manufacturing prices and limited capacity expansion.

• Under the baseline forecast, 42% of simulated 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, 59% of simulated consumption is lower than it was in 2024 (however, it is only 25% under the median outlook).

• Under the baseline forecast, 77% of simulated softwood lumber prices are lower in 2026 than they were in 2025. By 2030 this percentage is 88% (however it is only 74% under the median outlook).

PULP & PAPER MARKETS

• A high estimated sensitivity to general price inflation pushes the hardboard, fiberboard, and particleboard price index higher by 2030 under the baseline forecast.

• Annual packaging consumption is modeled to increase at a slower pace of 0.7%/year through 2030 under the baseline forecast, but expands 1.1%/year under the median outlook. 

• Paperboard prices are forecast to decrease 0.3%/year through 2030 under the baseline forecast as a higher unemployment rate weighs on demand growth. Paperboard prices are modeled to grow by 0.3%/year under the median outlook. Supply expansions outweigh demand increases under the baseline forecast, leading to greater annual consumption of packaging and paperboard products, but lower prices.

• Newsprint consumption is forecast to be remain flat around 0.8-0.9 million tonnes/year under both the baseline forecast and median outlook. Newsprint prices decline by 0.4%/year under the baseline forecast but decline 1.2%/year under the median outlook. This is a consequence of greater supply-side constraints and lower domestic production modeled under the baseline forecast.

• Steady demand for printing/writing papers and household/sanitary papers help maintain annual consumption. Prices increase under the baseline forecast by 0.6%/year for printing/writing papers and 3.2%/year for household/sanitary papers.

• Under the baseline forecast, 43% of simulated wood pulp consumption in 2026 is lower than it was in 2024 (the last year of observable data available from FAOSTAT) and 53% of simulated wood pulp prices are lower in 2026 than they were in 2025. By 2030, these percentages are 34% and 47%, respectively.

WOOD BIOENERGY MARKETS 

• Domestic consumption of wood pellets is expected to decline. However, exports of wood pellets under the baseline forecast are expected to increase, pushing domestic production of pellets up by 1.9%/year through 2030. 

• Domestic consumption of wood fuel decline 1.5%/year under the baseline forecast, but only by 0.5%/year under the median outlook.

TIMBER PRODUCT MARKETS

• The baseline forecast produces a lower annual rate of domestic sawtimber and pulpwood production through 2030 (relative to modeled production under the median outlook). Production of softwood and hardwood timber used for lumber or veneer manufacturing is expected to decline by 0.5%/year through 2030 (but rises by 0.7%/year under the median outlook). 

• Timber prices decline under the baseline forecast (falling 1.0%/year through 2030). This reflects slower price growth and less demand compared to what is modeled under the median outlook (which generates only a 0.1%/year decline through 2030). 

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 forecast to expand by 1.2%/year through 2030, while wage rates increase by less than 1%/year across all sectors through 2030.

FIGURES AND TABLES