Prices paid for goods used in residential construction ex-energy rose 0.2% in July after climbing 3.0% in June (not seasonally adjusted), 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 have declined just twice since December 2019 and have increased 19.4% over the past 12 months.
The index for inputs to residential construction, including food and energy, increased more (+0.6%) and is up 22.3%, year-over year. This increase closely mirrors the 26% increase found in a recent NAHB survey.
Building materials prices have increased 13.0% year-to-date (YTD) in stark contrast with the same period in 2020 during which prices increased 1.1%. The average change in the building materials PPI between January and July was +1.2% from 2015 through 2019 (the most recent data available), less than one-tenth the gain thus far in 2021.
Steel mill products prices climbed 10.8% in July following a 6.2% increase in June. The pace of increases has hastened each of the past two months and prices have climbed 108.6 % over the past 12 months and 87.6% in 2021 alone.
The rate of monthly steel price increases slowed to 2.4% in May 2021, snapping an eight-month stretch during which the PPI for steel mill products rose each month by more than it had the prior month.
The monthly change in the steel mill products PPI increased by more than 10% only three times (in 1947, 1948, and 2008) over the 80-year period ending in 2020. Monthly increases have already exceeded that mark four times in 2021.
The PPI for softwood lumber (seasonally adjusted) decreased 29.0% in July—the largest monthly decline since tracking of the series began in 1947. Prior to 2020, the largest monthly drop in the softwood lumber PPI was a -10.7% reading from April 1980. The steep decrease came on the heels of an unexpectedly mild 0.7% decline in June as the cash price of lumber began falling precipitously in mid-May. The PPI for softwood lumber has fallen 29.5% from its peak but remains 71.9% above its January 2020 level.
Although the direction of the index value change is encouraging, the continued volatility is not. Price volatility as measured monthly by the PPI or weekly by industry publications remains at an all-time high for a 12-month period.
Prices paid for gypsum products increased 2.5% in July and is up 15.8% year-to-date. Over the past 12 months, the index has climbed 21.7%–the largest 12-month increase since July 2006 (NSA).
Prices paid for ready-mix concrete (RMC) were unchanged in July (seasonally adjusted) after increasing 1.1% increase in June.
On a regional basis, prices increased in the Midwest (+0.6%) and West (0.8%), declined in the South (-0.6%), and were unchanged in the Northeast.
Although recent regional price changes have tended to balance out month-to-month, price gains in the Northeast and West have far outpaced those in the Midwest and South over the past four years. Since July 2017, prices paid for ready-mix concrete have increased by roughly 20% in the NE and W, while prices have increased less than half as much in the MW and S (+9%).
Other Building Materials
The chart below shows the 12-month and year-to-date price changes of other price indices relevant to the residential construction industry.
As Congress continues to work on an infrastructure package, the Construction Materials index is particularly salient. This index is much more heavily weighted with products necessary and used in large amounts in the production of “traditional” infrastructure (e.g., roads, bridges, rail).