The prices of building materials generally increased in May, according to the latest Producer Price Index (PPI) release by the Bureau of Labor Statistics. Softwood lumber (+6.4%) led the way, followed by oriented strand board (+4.7%, not seasonally adjusted). The indexes for ready-mix concrete (-0.1%) and gypsum products (-2.6%) both declined, but the aggregate index for goods inputs to residential construction (+1.9%) still edged higher.
The increase in prices paid for residential construction inputs (goods) was the fifth consecutive monthly increase. The index has already risen 5.8% in 2018 and sits 8.3% higher than it did in May 2017. Since January 2017, the index for prices paid for goods inputs to residential construction has only declined twice—in May and December of 2017—each time falling just 0.1%.
As expected, the May PPI release captured the increase in softwood lumber prices that was not accounted for in April’s reading. The index for softwood lumber has increased every month but April in 2018.
The 4.7% increase in oriented strand board (OSB) prices follows April’s 7.1% gain. After a three-month downward trend, OSB prices have risen 26.3% over the past four months, according to BLS.
Due to methodology, OSB and softwood lumber data in the PPI can lag market conditions.
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 index for ready-mix concrete (RMC) prices fell (-0.1%) for the first time since February 2017 (seasonally adjusted). After an uncharacteristically large monthly increase in March—when the index rose 3.3%–monthly price changes have been much more in line with the ten-year average. Since the end of the Great Recession, the RMC price index (SA) has increased 0.2% each month, on average. Over the last 15 years, the month-over-month change in the index has exceeded 1% just 18 times.
BLS also reported that prices paid for gypsum products declined in May (-2.6%, seasonally adjusted). Gypsum prices are only up 0.6% since December 2017, thanks in large part to this month’s decline and the 2.0% decrease in January. Those price changes helped offset the combined 5.3% increases in February and March.