Record-Setting Pace of Price Increases Continues

Prices paid for inputs to residential construction (+0.7%), softwood lumber (+2.3%), gypsum products (0.4%), and OSB (+15.3%) all increased in November, according to the latest Producer Price Index (PPI) release by the Bureau of Labor Statistics.

Since January 2017, the price paid for every major input to construction NAHB tracks has increased. The following is a list of price increases by commodity since the start of the year:

+30.2%: OSB
+14.6%: Softwood lumber
+7.7%: Gypsum products
+3.1%: Inputs to residential construction (less labor and capital investment)
+2.4%: Ready-mix concrete

The steep increase in OSB prices follows months of modest increases inconsistent with builders’ purchasing experiences or data from Random Lengths.

Due to methodology, OSB data in the PPI still lags true market conditions. As additional OSB capacity has come online, prices have predictably fallen. This trend began in early November.The following is a breakdown of structural panel price changes over various periods.

The BLS report showed prices paid for softwood lumber continued their climb after a monthly decrease in September. Softwood lumber prices have increased in all but two months of 2017 and will likely rise again in December as final duties on Canadian lumber go into full effect and the PPI catches the price increases that occurred prior to the announcement.

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 November, its third consecutive 0.4% increase. Seventy-five percent of the rise in the final demand index resulted from a 1.0% increase in final demand goods. Prices paid for services increased 0.2%, and final demand prices for core goods (i.e. goods excluding food and energy) increased 0.3%. Final demand prices less food, energy, and trade services rose 0.4% in November.

Roughly half of the increase in prices paid for services was due to the price of loan services, which rose 3.1%. In contrast, margins for machinery and equipment wholesaling declined 1.9%. The substantial increase in goods prices was primarily the result of a steep increase in gasoline prices, which jumped 15.8%. Prices paid for diesel fuel–among the largest costs for building materials distributors and their customers—increased by a more modest 1.8%. Although the price of gasoline is a headline item, it is notoriously volatile. The changes in prices paid for gasoline were +10.9%, -4.9%, and +15.8% in September, October, and November, respectively. Over the same three months, the price of diesel rose by 4.8%, 8.4%, and 1.8%.



Tags: , , , , , , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *

%d bloggers like this: