November 21, 2013
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for October. Producer prices for finished goods declined by 0.2% in October following a 0.1% decline in September. Increases in core prices (excluding food and energy) of 0.2% and food prices of 0.8% were offset by a 1.5% decline in energy prices, pushing the overall index down.
Wood products prices edged up as the monthly PPIs are beginning to reflect increases in weekly measures. Gypsum prices declined modestly from a recent May peak but the outlook is for higher prices in 2014 given announced planned increases for 2014 from National Gypsum.
September 13, 2013
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for August. Producer prices for finished goods rose 0.3% in August driven by increases in food (0.6%) and energy (0.8%) prices. Excluding food and energy, the core index was flat.
The PPI for softwood lumber rose 2.6% from July to August after declining 2.3% from June to July. Strong demand from China helped the rebound. Offshore markets have gained favor as recent price declines have triggered the return of the export tax on Canadian shipments to the US.
OSB prices declined 9.5% in August, bringing them to their lowest level since the run-up that began in early 2012, but leaving them still 34.6% higher than that low point.
Gypsum prices declined slightly in July and August, a two month decline of 1.8%, but the prospect of price relief was short-lived. Prices are currently at 92.6% of their peak housing boom levels and at least one major producer, National Gypsum, has announced a 20% price hike effective with 2014 shipments. This price increase is eerily similar to the hikes in early 2012 and 2013.
July 18, 2013
After a period of significant increases, the growth in the prices of building materials has slowed according to June Producer Price data from the Bureau of Labor Statistics (BLS).
Year-over-year growth in gypsum prices slowed by 3.8 percentage points to 15.6%. Annual softwood lumber price growth decelerated by 8.7 percentage points to 8.0%. And Oriented Strand Board (OSB) prices grew by 37.0% year-over-year in June, still high, but 17.8 percentage points less than the year-over-year growth recorded in May.
The slowing of the growth of building material prices is good news for builders and bears watching for the rest of 2013.
For the economy as a whole, producer prices for finished goods rose by 0.8% on a seasonally adjusted month-over-month basis in June, the second consecutive month of growth.
March 14, 2013
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for February. Energy prices, rising 3.0% based largely on gasoline prices, pushed the overall index up 0.7%. Food prices declined 0.5% while the core price index (i.e., excluding food and energy) was stable, rising 0.2% since last month.
While overall producer prices have been relatively stable, the prices for certain building materials have risen rapidly as the housing recovery has gained momentum since the beginning of 2012. Overall producer prices are up less than 3% while softwood lumber, OSB and gypsum prices are 30%, 80% and 26% higher than at the start of 2012.
The rising prices of these building materials represent a significant challenge for home builders as they find themselves squeezed between rising input prices and a housing market where prices are only recently recovering from their steep declines.
November 15, 2012
The Bureau of Labor Statistics reported that the Consumer Price Index for Urban Consumers (CPI-U), a measure of inflation, slowed in the month of October to 0.1% on a seasonally adjusted basis. In August and September, the same measure rose by 0.6% per month. The deceleration in the CPI-U largely reflects a 0.2% decline in energy prices from 5.6% growth in August and 4.5% growth in September. The graph below shoes that the difference between top-line and core inflation is mainly energy price inflation.
Although the fuel oil price index rose by 1.1% in October, the gasoline index fell by 0.6%. Meanwhile, food prices increased by 0.2% in October accelerating from the 0.1% rate of inflation in September as the food at home index, which was unchanged in September, grew by 0.3% in October. Over the twelve month period ending in October 2012, the CPI-U rose by 2.2% before the seasonal adjustment.
While headline inflation slowed in October from its pace in August and September, core CPI-U accelerated. Core CPI-U, which excludes volatile food and energy prices and is considered a better representation of the underlying fundamentals in the price level, grew by 0.2% in October. In September, core CPI-U rose by 0.1%. Acceleration in core-CPI reflected a 0.3% increase in the shelter index. However, the price increase in the shelter index, which accounts for 41.4% of core CPI-U and 32.0% of CPI-U, were partially offset by price declines in the indexes for new and used vehicles. Over the twelve month period ending in October 2012, core CPI-U rose by 2.0% on an unadjusted basis.
Despite the recent increase in shelter prices, the real cost of shelter remains depressed. NAHB constructs a real shelter index by deflating the CPI for shelter using the core CPI. The path of this real shelter index rises when rent inflation outpaces core inflation and declines when core inflation rises faster than inflation in rents. After experiencing a decline that began soon after the onset of a recession in August 1990 and ended in November 1993, real shelter costs grew uninterrupted until December 2008. After peaking, real shelter costs declined by 2.3% between December 2008 and August 2012 and have remained relatively unchanged until the most recent quarter. The decline in the real shelter index indicates that the influence of the shelter prices on core inflation has waned, even as the shelter prices have risen. While shelter prices rose by 3.6% between December 2008 and August 2012, core inflation rose by 6.2%. Since August 2012, the real shelter index has risen by 0.2%, indicating that it has been a principal influence in the recent growth of core inflation.
June 14, 2012
Today’s release for the Consumer Price Index for All Urban Consumers (CPI-U) showed a 0.3% decline between April and May 2012. The energy index accounted for most of the drag on topline CPI last month, falling an additional 4.3% after a 1.7% drop in April. The latest decline represented the largest percentage contraction in the energy index since December 2008—a time period in which energy prices were falling sharply in response to the deepening recession. Gasoline prices contributed significantly to the decline in the broader energy index, averaging $3.79 over the course of May, a 4.2% decline from April. Prices fell throughout the month of May and have trended lower through the first two weeks in June ($3.63 nationally as of 6/11), which points to additional downward pressure on the energy index and overall CPI.
Core CPI, which excludes the often-volatile food and energy goods, increased 0.2 percent month-to-month in May, roughly the same rate of growth it has averaged since the beginning of 2011. On a year-over-year basis, core CPI advanced 2.3% for the fourth time in the last five months. The shelter index, which serves as a proxy measure of overall housing costs, maintained its slow and steady march higher by increasing 0.2% on a month-to-month basis for the 11th time in 12 months. For rental housing, NAHB separately constructs a measure of real rental rates from the CPI for rent of primary residences and overall CPI. On an annualized basis, the real rent index jumped 6 percent in May, based on a trend-like increase in rents coupled with the sharp (annualized) decline in overall inflation. In addition, this marked the largest percentage jump in this metric since late 2008.
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.
March 19, 2012
The Consumer Price Index for All Urban Consumers (CPI-U) jumped 0.4% on a month-to-month basis during February 2012. Although the core and food CPI indices registered very modest gains, energy prices increased 3.2% and accounted for the vast majority of last month’s gain in the overall CPI. In fact, had natural gas prices not posted their fifth consecutive month-to-month decline, the contribution from the energy index would have been even larger during February. The monthly national average retail price of gasoline (across all formulations) increased 20 cents per gallon (or nearly 6%) between January and February; with retail prices at the pump having gained an additional 10 cents per gallon nationally through mid-March, energy will likely bolster topline CPI for March.
The shelter index, which serves as the CPI’s broad measure of housing costs, increased 0.2% in February—the identical rate that it has averaged over the prior 8 months. On a year-over-year basis, the shelter index increased just above 2%. Looking more specifically at the rental market, NAHB’s measure of real rental rates, which is constructed from the CPI for rent of primary residences and overall CPI, fell for the second consecutive month during February. Recent data from NAHB point to the multifamily housing market stabilizing to some degree after conditions tightened significantly over the course of 2010.
Although NAHB’s real rent index suggests weaker demand for apartments, the softening in the real rent index is a result of energy prices pushing the overall CPI up at a faster rate than rents. An accelerating pace of payroll growth (and by extension stronger household formations), as well as ongoing difficulties for potential homebuyers in obtaining credit will bolster apartment demand further going forward and likely put additional upward pressure on asking rents.
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.
January 20, 2012
The Bureau of Labor Statistics (BLS) reported the Consumer Price Index for All Urban Consumers (CPI-U) remained unchanged for the second month in a row. An easing in prices across much of the energy commodities complex weighed on topline CPI growth throughout the fourth quarter of 2011, offsetting the gains in the core (all items less food and energy) and food CPIs. For the calendar year as a whole, CPI-U increased 3.2%–roughly double the rate of increase observed during 2010.
Core CPI has posted gains in 35 of the last 36 months, but even with such a long period of nearly uninterrupted growth the overall rate of price level growth for non-food and non-energy consumer goods and services has remained modest. Indeed, compared to December 2010 core CPI has increased 2.2% and at a relatively tepid rate of 1.4% per annum since 2008.
Among the various subcomponents of core CPI, the indexes for shelter, recreation, medical care, and tobacco all posted increases, offsetting weaker readings for used cars and trucks, new vehicles, and apparel. The shelter index registered its 16th consecutive month-to-month increase, but as has been the case with many types of consumer goods and services, the rate of increase has been modest with a gain of 1.3% for calendar year 2011.
With apartment vacancy rates tightening appreciably over the past few quarters, rental rates have started to rebound. Indeed, NAHB’s measure of real rental rates, which is constructed from the CPI for rent of primary residences and overall CPI, increased at an average annualized rate of 2.6% during the fourth quarter of 2011. Apartment vacancy rates could decline further over the course of 2012 as household formations among the key renter age cohorts recover. In turn, real rents would likely increase over the near term.