OSB Price Declines Consistent with Random Lengths Data

The price of OSB fell 1.0% in October, in contrast to prices paid for softwood lumber (+2.3%), gypsum products (+0.3%) and ready-mix concrete (+0.2%), which all increased. In addition, the price index measuring inputs to residential construction rose 0.1% in October, according to the latest Producer Price Index (PPI) release by the Bureau of Labor Statistics.

The drop in OSB prices followed a three-month period in which prices increased 7.1% over the prior three months. While the monthly decline is welcome news, OSB prices remain 12.9% and 37.0% higher than they were at the beginning of 2017 and 2016, respectively.

More recent data published by Random Lengths shows an even steeper decrease over the past month in the prices paid by end-consumers for OSB (just as a person is considered the end-consumer in consumer price inflation (CPI), businesses such as builders and remodelers are considered end-consumers for the purposes of PPI).

The BLS report showed prices paid for softwood lumber resumed their climb after a monthly decrease in September. Softwood lumber prices have increased in all but two months of 2017.

Two important factors drive disparities between price changes builders have experienced and the PPI index changes:

1. The producer price index tracks prices paid by wholesalers, distributers, and retailers rather than what those businesses charge customers.
2. The index does not include prices paid for Canadian products as it does not include imports (just as the consumer price index does not reflect prices paid for exports).

The economy-wide PPI advanced 0.4% in October after a 0.4% increase in September. The increase was driven by 0.5% and 0.3% gains in prices paid for services and goods, respectively. Final demand prices for core goods (i.e. goods excluding food and energy) increased 0.3%, accounting for over two-thirds of the monthly increase in the prices paid for goods. Final demand prices less food, energy, and trade services rose 0.2% for the third consecutive month.

Three-quarters of the increase in prices paid for services was due to the 1.1% advance in margins for final demand trade services (i.e. changes in margins received by wholesalers and retailers). In contrast, margins for food retailing fell 2.1%.