Prices paid for goods used in residential construction ex-energy rose 0.7% in December (not seasonally adjusted) and ended the year 5.4% higher than they stood in December 2019, according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics. Building materials (i.e., inputs to residential construction less food and energy) prices declined just twice over the course of 2020.

The index for inputs to residential construction, including food and energy, also increased over the month (+1.6%) as energy prices climbed 5.5%.

Prices paid for softwood lumber (seasonally adjusted) rose by double digits (+12.5%) following a 23.9% decline over the prior two months. The softwood lumber PPI remains nearly 15% lower than the record high set in September, but data from Random Lengths suggests that the index will increase more in January as rising prices in late-December and the first half of January are captured by the BLS survey.

Identical reasoning led us to note that “…the majority of upward price movement will not be evident in the BLS data until the next release in January 2021” in last month’s PPI post regarding the 17.8% decrease in the softwood lumber PPI.

Not only has softwood lumber reached historic highs in terms of prices this year, but those prices have been extremely volatile. The two most volatile years for the softwood lumber PPI since 2001 have been 2020 (0.45) and 2018 (0.29). In contrast, the 20-year annualized volatility has been roughly 0.14. This year’s price index has been roughly four times as volatile as it was during the recessionary years of 2008 and 2009.

In addition to nominal price movements and tariffs on Canadian lumber, cross-border purchasers are affected by the strength of the U.S. dollar relative to the Canadian dollar. Not only has the USD weakened 12.7% since March, it has fallen 3.5% since lumber prices began rising again in November.

Prices paid for gypsum products fell back 0.4% in December. Even after November’s 4.8% surge, prices paid for gypsum products ended the year just 0.9% higher than December 2019 prices.

Prices paid for ready-mix concrete (RMC) climbed 0.7% in December (seasonally adjusted), after falling 1.1% in November. Similar to softwood lumber prices, RMC has been fairly volatile recently compared to its long-run average.

Prices decreased in the South (-1.3%) and Northeast (-1.8%) while they rose in the West and Midwest by 0.9% and 5.8%, respectively (not seasonally adjusted).

Other changes in indexes relevant to home building and infrastructure are shown below.

Tags: Building Materials, building materials prices, construction costs, energy prices, Gypsum, inflation, ppi, ready-mix concrete, softwood lumber