Softwood Lumber, OSB, and Gypsum Lead 2017 Price Increases

    Prices paid for OSB (-13.0%), softwood lumber (-1.0%), and inputs to residential construction (-0.1%), all decreased in December, according to the latest Producer Price Index (PPI) release by the Bureau of Labor Statistics. The index for gypsum products advanced (+1.6%).

    Over the course of 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:

    +13.4%: Softwood lumber
    +13.2%: OSB
    +7.4%: Gypsum products
    +3.7%: Inputs to residential construction (less labor and capital investment)
    +2.9%: Ready-mix concrete

    The steep decline in OSB prices in December comes one month after the commodity posted a 15.3% gain. Even with the price decrease, the PPI for OSB remains 13.2% higher than it stood in January 2017 and 37.4% higher than it began 2016.

    Due to methodology, OSB data in the PPI lags market conditions. As additional OSB capacity has come online, prices have predictably fallen. December’s PPI captured the beginning of this trend that dates back to early November according to Random Lengths. Price information for structural panels as recent as early January 2018 is shown below.

    The BLS report showed prices paid for softwood lumber fell modestly, only the third monthly decrease over the course of 2017.

    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 fell 0.1% in December rather than advancing 0.2%, as market participants had expected. Most of the decline in the final demand index is attributable to the 0.2% decrease in the index for final demand services—its first monthly decline in nine months. The index for final demand goods was unchanged, but the final demand index for core goods (i.e. goods excluding food and energy) and goods less food, energy, and trade services rose 0.2% and 0.1%, respectively.

    Most of the decrease in prices paid for services was due to the decline in margins for final demand trade services (i.e. margins received by wholesalers and retailers), which fell 0.6%. This decline was fueled by a 10.7% decrease in the index for automotive fuels and lubricants retailing. In contrast, prices for inpatient care increased 0.7%. Moves in the prices of energy goods offset one another in December, helping the overall flat reading. In particular, prices paid for jet fuel and diesel fuel both increased over the month, while the index for gasoline fell.

    Discover more from Eye On Housing

    Subscribe to get the latest posts to your email.

    Leave a Reply