Producer Prices in April – Mixed

May 11, 2012

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for April today. Overall, the PPI for finished goods declined 0.2 percent from March on a seasonally adjusted basis, as a 1.4 percent decline in energy prices outpaced 0.2 percent gains in both food goods and the core index (i.e., finished goods less food and energy).

In a surprise development, gypsum prices declined 1.9 percent from March to April, after strong gains through the beginning of the year that had brought prices to 13.8 percent above levels at the end of last year. Today’s decline brings the year to date gain in gypsum prices back down to 11.6 percent.

PPIs for other home building inputs showed softwood lumber prices rose 1.4 percent in April while concrete prices declined 0.2 percent. The aggregate index for residential construction rose 0.2 percent for the month and the pace of year over year increases slowed to 2.9 percent from recent highs between 6 and 7 percent in mid-2011.

 


Producer Prices in March – Gypsum Continues to Rise

April 16, 2012

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for March last week. The PPI for finished goods was unchanged from February on a seasonally adjusted basis, as a 1.0 percent decline in energy prices offset a 0.2 percent increase in food goods and a 0.3 percent increase in the core index (i.e., finished goods less food and energy).

With respect to building materials, gypsum prices continue to be the main driver for residential construction cost increases in 2012, rising 2.2 percent in March, after increases of 5.9 percent and 5.1 percent in January and February, raising gypsum prices 17.7 percent above the most recent low in February of 2011.

Lumber prices rose 0.9 percent in March while cement prices declined 0.4 percent, pushing the aggregate index for residential construction up 1.1 percent for the month. This brings residential construction costs to 13.0 percent above the mid-2009 lows.


Producer Prices in February – Higher Prices for Gypsum

March 20, 2012

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for February last week (PPI). The PPI for finished goods rose 0.4 percent in February from January on a seasonally adjusted basis. Excluding food and energy, the core index for finished goods rose 0.2 percent. The monthly data can be volatile, but these growth rates are roughly in line with their averages over the prior twelve months. The PPIs for energy and food have been driving the changes in the PPI for finished goods in recent months.

Over longer periods high energy costs are transmitted into the core PPIs, not as a direct input, but indirectly through the production process of other inputs. The spike in energy prices that peaked in mid-2008 fed increasing inflation in the core PPI for finished goods, before declining energy prices in the second half of the year slowed core inflation through 2009. Rising energy prices have filtered through to core PPI again in 2011, but the deceleration in energy prices points to a decelerating core PPI for finished goods in 2012.

With respect to building materials, gypsum prices continue to be the main driver for residential construction in 2012, rising 5.1 percent in February from January on a seasonally adjusted basis, following a January increase of 5.9 percent. This puts February gypsum prices 15.2 percent higher than February last year.

Cement and lumber prices, in contrast, are 2.2 percent and 1.6 percent higher than a year ago, respectively. Overall, prices for inputs to residential construction are 4.4 percent above one year ago.

 


Producer Prices in January – Watch Gypsum

February 17, 2012

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for January on Thursday. The index for finished goods rose 0.1 percent in January from December, balancing a 0.4 percent increase in the core index and declines in the food (-0.3 percent) and energy (-0.5 percent) indexes, keeping the overall index in line with its relatively flat trajectory of 2011.

The PPI for residential construction moved up a modest 0.6 percent in January with help from soft lumber prices (0.2% increase), but in spite of large increases in cement (2.8% increase) and gypsum (5.9% increase). As we have noted previously

( http://eyeonhousing.wordpress.com/2011/11/03/sharp-rise-in-gypsum-prices-likely-in-new-year/ ),

in late 2011 gypsum producers informed customers of planned price increases for 2012. Some NAHB members have confirmed the higher prices have taken effect, and the PPI provides additional evidence.

It is possible that the pattern of 2010 and 2011 will be repeated, with increases early in the year reversed over subsequent months, but this is an issue we will continue to watch closely.

 


Top 2011 Posts:Sharp Rise in Gypsum Prices Likely in New Year

December 27, 2011

With the end of 2011 approaching, the contributors of NAHB’s Eye on Housing thought it would be useful to take a look at the updates that attracted the most readers over the last year.

In November, we examined a possible 2012 price increase for gypsum. Several NAHB members have expressed concern about gypsum producers’ stated plans for significant price increases in 2012, some as high as 35%. An increase of this magnitude will raise gypsum prices to a level almost 20% above the long-term trend.


Sharp Rise in Gypsum Prices Likely in New Year

November 3, 2011

Gypsum production is heavily dependent on construction industries. Approximately 90% of gypsum is used in the manufacture of wallboard for residential and non-residential building applications. A further 5% is used as an additive in cement production.

The steep decline in the residential and non-residential building sectors over the past five years has greatly affected gypsum demand. Consumption of gypsum fell over 50%, from 41.6 million tons in 2006 to 19.4 million tons in 2010 (United States Geological Service). NAHB forecasts only a modest 1.3% increase in housing starts in 2011, then a 15% rise in 2012. Gypsum demand is expected to closely follow the housing starts forecast, remaining relatively flat in 2011 followed by a moderate increase in 2012.

Gypsum prices generally track demand. As the chart below shows, the gypsum price index, (a component of the producer price index), has by and large moved in line with construction spending over the past 20 years.

 

The chart also shows the long term trend in the gypsum price index. In the period of peak housing production, between mid-2003 and mid-2006, gypsum producers struggled to supply the very high demand for wallboard. Consequently, gypsum prices surged, rising over 75%, to a level well above their long term trend.

With the housing market entering a downturn in 2007, gypsum demand slowed sharply and prices followed, falling 32% over a 20 month period. This returned prices to a level close to their long term trend by early-2008.

With very weak demand from the housing sector, gypsum prices have bounced around within a relatively narrow range since the early-2008 trough. In the past three months, the gypsum price index has trended down, falling 0.6% in July, 1.7% in August and 1.7% in September. Overall the index is down 4.6% relative to September 2010. The current gypsum price level is below the 2008 trough and 15% below the long term price trend level.

Gypsum producers responded to the very weak demand over the past four years by slowing production though reduced shifts, moth-balling production lines and even the closure some of their older production facilities. There is no doubt that they, like home builders and many building materials suppliers, are struggling to remain profitable in the current economic environment.

Recently, several NAHB members have expressed concern about gypsum producers’ stated plans for significant price increases in 2012, some as high as 35%. An increase of this magnitude will raise gypsum prices to a level almost 20% above the long-term trend.

NAHB research indicates that gypsum drywall represent around 4.4% of the construction cost of an average new home, with material input typically represent 30% of the component cost (ie. gypsum drywall material cost around 1.3% of construction cost). If construction costs account for 52.9% of the house price, the current median sales price of a new home is $204,400, and points and interest on a loan, broker’s fees and return on equity add a further 16% to the final sales price of a home, then a 35% increase in gypsum drywall prices would increase the cost of new home by around $600. Based on income distribution and the minimum income needed to support the monthly mortgage payment (plus tax and insurance), analysis by NAHB indicates 246,000 U.S. households are priced out of the market for a median-priced new home when the price of the home is increased by $1,000. Thus, with the proposed increase in gypsum drywall prices, up to 143,000 U.S. households are likely to be priced-out of the market for a median-priced new home.

The proposed 35% price increase is out of proportion given the currently weak housing market. With builders’ margins squeezed to the bare minimum, little scope exists for them to absorb increased input costs. Any increase in cost is likely to be passed on to the home buyer, leading to a considerable decrease in the number of households that can afford a median-priced new home. This will weaken housing demand further at a time when new home sales are bouncing around at record lows.

NAHB will continue to monitor gypsum price movements very closely.


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