Building Material Prices Increase in November Led by Lumber

Prices for inputs to new residential construction—excluding capital investment, labor, and imports—were unchanged in November according to the most recent Producer Price Index (PPI) report published by the U.S. Bureau of Labor Statistics. Compared to a year ago, this index was up 0.7% in November after rising 0.3% in October.

The inputs to the new residential construction price index can be broken into two components­—one for goods and another for services. The goods component increased 1.2% over the year, while services decreased 0.3%. For comparison, the total final demand index increased 3.0% over the year in November, with final demand with respect to goods up 1.1% and final demand for services up 3.9% over the year.

Goods

The goods component has a larger importance to the total residential construction inputs price index, representing around 60%. The price of input goods to new residential construction was unchanged in November from October. The input goods to residential construction index can be further broken down into two separate components, one measuring energy inputs with the other measuring goods less energy inputs. The latter of these two components simply represents building materials used in residential construction, which makes up around 93% of the goods index.

Prices for inputs to residential construction, goods less energy, were up 2.3% in November compared to a year ago. This year-over-year increase was larger than in October (2.0%) and was the largest year-over-year increase since June earlier this year. The growth rate in November 2023 was 1.2%. The index for inputs to residential construction for energy fell 10.9% year-over-year in November, the fourth straight yearly decline in input energy prices.  

The graph below focuses on the data since the start of 2023 for residential goods inputs. Energy prices have continued to fall over the past year, with only two periods of growth in 2024.

At the individual commodity level, excluding energy, the five commodities with the highest importance for building materials to the new residential construction index were as follows: ready-mix concrete, general millwork, paving mixtures/ blocks, sheet metal products, and wood office furniture/store fixtures. Across these commodities, there was price growth across the board compared to last year. Ready-mix concrete was up 3.9%, wood office furniture/store fixtures up 3.4%, general millwork up 2.8%, paving mixtures/blocks up 1.6% and sheet metal products up 0.5%. Unsurprisingly, given how energy prices have trended this year, the input commodity that had the largest fall in price over the year was No. 2 diesel, which was down 20.6%.

Among lumber and wood products, the commodities with the highest importance to new residential construction were general millwork, prefabricated structural members, softwood veneer/plywood, softwood lumber (not edge worked) and hardwood veneer/plywood. The input commodity in residential construction that had the highest year-over-year percent change (across all input goods) in November was softwood lumber (not edge worked), which was 13.7% higher than November 2023. This is of particular note because none of the other top wood commodities had a year-over-year change above 3% in November. Lumber supplies have been driving prices higher over the past month as the sawmill industry continues to adjust to the mill closures that occurred earlier this year. Higher lumber demand as residential construction rebounds due to lower interest rates is likely to continue to increase lumber prices.

Services

Prices of inputs to residential construction for services, were unchanged in November from October. The price index for service inputs to residential construction can be broken out into three separate components: a trade services component, a transportation and warehousing services component, and a services excluding trade, transportation and warehousing component. The most significant component is trade services (around 60%), followed by services less trade, transportation and warehousing (around 29%), and finally transportation and warehousing services (around 11%). The largest component, trade services, compared to last year was down 1.2% in November after declining 1.5% in October.