Double-Digit Decline in OSB Prices from December to January

Prices paid for softwood lumber (+1.0%), ready-mix concrete (+0.5%), and inputs to residential construction less labor (+1.1%) all increased in January, according to the latest Producer Price Index (PPI) release by the Bureau of Labor Statistics. The seasonally adjusted indexes for gypsum products and OSB declined by 2.0% and 11.3%, respectively.

The steep decline in OSB prices in January comes one month after a 13.2% decrease, bringing the price index back to January 2017 levels. Even so, OSB prices in January 2018 were 21.9% higher than they were at the start of 2016.

However, due to methodology, OSB and softwood lumber data in the PPI lag market conditions. According to Random Lengths, the price of OSB has been on the rise over the last five weeks. These increases will likely be captured in next month’s PPI release. Price information for structural panels as recent as early February 2018 is shown below.

BLS also reported that prices paid for softwood lumber rose a modest 1.0% (not seasonally adjusted) in January.

In contrast, using more recent data from Random Lengths shows that the average price of softwood lumber has increased by more than 10% since the start of 2018.

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 increased 0.4% in January. The increase in the final demand index was attributable to a 0.3% increase in the index for final demand services combined with a 0.7% increase in final demand goods. Prices paid for core goods (i.e. goods excluding food and energy) and goods less food, energy, and trade services rose 0.2% and 0.4%, respectively.

Nearly two-thirds of the advance in prices paid for services was due to a broad-based 0.4% increase in the index for all services less trade, transportation, and warehousing. A 1.0% increase in the price paid for outpatient hospital care was a major factor. Meanwhile, the final demand indexes for airline passenger and wireless telecommunications services both declined.

More than 80% of the increase in goods prices was attributable to energy prices, which advanced 3.4%. In the residential sector, the index for residential electric power rose while the index for residential natural gas declined. Substantial differences in the movements of prices paid for certain goods persisted in January, as gasoline climbed 7.1% in January, while the price index for chicken eggs fell 39%.



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