Ready-Mix Concrete, Gypsum Products Lead Building Materials Prices Higher in January

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Prices paid for goods used in residential construction increased 0.5% in January (not seasonally adjusted) according to the latest Producer Price Index (PPI) released by the Bureau of Labor Statistics.

Building materials prices have increased 2.0% over the last 12 months and by 3.3% since January 2018.  The average monthly increase since the start of 2018 has been 0.14%, with the largest monthly increase (+1.9%) occurring during the historic run-up in lumber prices in May 2018. The largest decline (-1.8%) occurred in December of the same year, at the tail end of the fall of lumber prices from their June 2018 peak.

Prices paid for gypsum products increased 2.8% in January (seasonally adjusted), the largest percentage increase since February 2018. Although the price increase was relatively steep, gypsum products remain less expensive than they were in January 2018.  This is mainly the result of an 8.4% price decline between August 2018 and February 2019 that brought prices to their lowest level since early 2017.  Prices have risen 7.1% over the last three years.

Prices paid for ready-mix concrete (RMC) advanced 0.6% in January (seasonally adjusted) after decreasing in three of the four preceding months.

RMC prices have been volatile over the last two years relative their post-Great Recession average.  Annualized monthly volatility from January 2018 to January 2020 has been more than two times what it was from July 2009 through December 2017.

The PPI report shows that softwood lumber prices declined 0.9% (seasonally adjusted) in January. In contrast, the monthly average of the Random Lengths Composite Index increased 2.5% from December 2019 to January 2020.  As the discrepancy is likely due to timing differences between the two surveys, the softwood lumber PPI will likely rebound next month as would be consistent with the reconciliation of prior differences.

In 2019, American buyers of Canadian lumber were adversely affected by the depreciation of the US dollar relative to the Canadian dollar in addition to the 20% tariff on Canadian lumber imports. Not only did the price of softwood lumber rise in 2019, but the US dollar also depreciated 4.6% against the Canadian dollar over the period.

Fortunately, although prices have increased in 2020 according to Random Lengths, so too has the strength of the dollar.  Relative to the Canadian dollar, the U.S. dollar has appreciated 1.9% since the beginning of 2020 and 1.6% since the last PPI blog post.



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