May 15, 2013
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for April. Overall, producer prices declined for a second month based on continuing declines in energy prices, but the sharp price increases for the building materials framing lumber and OSB may be nearing an end.
The PPI for finished goods declined 0.7% in April from March (seasonally adjusted) driven by a 2.5% decline in energy prices. Core prices (excluding food and energy) continued their modest pace, rising 0.1% in April. Declining food prices also contributed to the decline in overall producer prices.
The monthly PPIs for framing lumber and OSB increased from March to April, 3.2% and 6.5% respectively, but weekly price data from Random Lengths indicate that turning points during April may be the beginning of a reversal of the steep increases that have accompanied the housing market recovery. If sustained these declines should appear in the June release of the May data.
Indexing both the PPI and the Random Lengths framing lumber price to January 1995 shows that they move together closely, reflecting the same price dynamics, with the weekly data from Random Lengths showing a larger amplitude in the changes. Based on monthly prices the PPI indicates a 67% increase from the 2009 trough to April; the weekly data show a trough to April increase of 124% in lumber prices.
Price increases for OSB are even more dramatic. According to the PPI data OSB prices have increased 151% since bottoming out in the housing bust; the weekly Random Lengths data show a 206% increase.
A break in prices would be a welcome relief for builders. With house prices less than 10% above their housing bust lows, the impact of these rising input costs has presented a significant challenge for builders during the recovery.
March 14, 2013
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for February. Energy prices, rising 3.0% based largely on gasoline prices, pushed the overall index up 0.7%. Food prices declined 0.5% while the core price index (i.e., excluding food and energy) was stable, rising 0.2% since last month.
While overall producer prices have been relatively stable, the prices for certain building materials have risen rapidly as the housing recovery has gained momentum since the beginning of 2012. Overall producer prices are up less than 3% while softwood lumber, OSB and gypsum prices are 30%, 80% and 26% higher than at the start of 2012.
The rising prices of these building materials represent a significant challenge for home builders as they find themselves squeezed between rising input prices and a housing market where prices are only recently recovering from their steep declines.
December 13, 2012
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for November. Once again energy prices are the main driver. The PPI for finished goods declined 0.8%, led by a 4.6% decline in the energy index. Core producer prices (i.e., excluding food and energy) rose 0.1%. Historically, core prices have been relatively stable, averaging monthly increases of 0.2%, while energy prices have been the main source of volatility.
In comparison to the relative calm of overall producer prices, prices for the inputs for home building have seen significant increases so far this year. In November gypsum and softwood lumber added to their gains in 2012, with prices 14% and 13% higher, respectively, than at the start of the year. Prices for OSB retreated slightly but remain 50% above last December’s level.
November 16, 2012
The Bureau of Labor Statistics (BLS) has released the Producer Price Indexes (PPI) for October. Producer prices continued the recent pattern of following energy prices. The PPI for finished goods declined by 0.2% in October from September while the index for energy goods declined by 0.5%. The core index which excludes food and energy declined by 0.2%.
Turning to the inputs for home building, prices for gypsum declined slightly in October but are 13.8% higher than at the start of the year. Prices for softwood lumber have been volatile in recent months, declining in October but averaging roughly 10% above last year’s levels. Prices for OSB continued their climb and now stand 52.1% above levels at the beginning of the year. Reports of another round of increases in gypsum prices in 2013 as well as continued strength in OSB prices could pose challenges for builders in 2013.
October 16, 2012
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for September on Friday. The PPI for finished goods increased 1.1% from August on a seasonally adjusted basis, driven mainly by a 4.7% increase in prices for finished energy goods. Prices for finished food goods rose at a 0.2% annual rate while the core index (i.e., finished goods less food and energy) was unchanged. Swings in the energy index, led mainly by gasoline prices, have been the key factor moving producer prices since mid-2010 as growth in the core index has been relatively stable.
Among inputs for home building, PPIs for gypsum and wood products showed sustained increases since the beginning of the year. Prices for gypsum declined slightly in September but are still 14.6% higher than in December of last year. Prices for softwood lumber and OSB have increased 12.4% and 50.2%, respectively, over the same period. While these increases leave these materials prices below their housing boom peaks, they are elevated relative to most of the post-boom experience.
In the case of OSB, there has been some indication in the trade press that the recent price increases are related to capacity constraints. Productive capacity was reduced in the wake of the housing bust, expanded in mid-2010 as the homebuyer tax credit stimulated demand and prices spiked, but reduced again when that demand faded with the expiration of the credit. Reports are that as producers judge the improvements seen in housing demand this year sustainable, capacity will be increased which should lead to easing in prices.
May 11, 2012
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for April today. Overall, the PPI for finished goods declined 0.2 percent from March on a seasonally adjusted basis, as a 1.4 percent decline in energy prices outpaced 0.2 percent gains in both food goods and the core index (i.e., finished goods less food and energy).
In a surprise development, gypsum prices declined 1.9 percent from March to April, after strong gains through the beginning of the year that had brought prices to 13.8 percent above levels at the end of last year. Today’s decline brings the year to date gain in gypsum prices back down to 11.6 percent.
PPIs for other home building inputs showed softwood lumber prices rose 1.4 percent in April while concrete prices declined 0.2 percent. The aggregate index for residential construction rose 0.2 percent for the month and the pace of year over year increases slowed to 2.9 percent from recent highs between 6 and 7 percent in mid-2011.
April 16, 2012
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for March last week. The PPI for finished goods was unchanged from February on a seasonally adjusted basis, as a 1.0 percent decline in energy prices offset a 0.2 percent increase in food goods and a 0.3 percent increase in the core index (i.e., finished goods less food and energy).
With respect to building materials, gypsum prices continue to be the main driver for residential construction cost increases in 2012, rising 2.2 percent in March, after increases of 5.9 percent and 5.1 percent in January and February, raising gypsum prices 17.7 percent above the most recent low in February of 2011.
Lumber prices rose 0.9 percent in March while cement prices declined 0.4 percent, pushing the aggregate index for residential construction up 1.1 percent for the month. This brings residential construction costs to 13.0 percent above the mid-2009 lows.
March 20, 2012
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for February last week (PPI). The PPI for finished goods rose 0.4 percent in February from January on a seasonally adjusted basis. Excluding food and energy, the core index for finished goods rose 0.2 percent. The monthly data can be volatile, but these growth rates are roughly in line with their averages over the prior twelve months. The PPIs for energy and food have been driving the changes in the PPI for finished goods in recent months.
Over longer periods high energy costs are transmitted into the core PPIs, not as a direct input, but indirectly through the production process of other inputs. The spike in energy prices that peaked in mid-2008 fed increasing inflation in the core PPI for finished goods, before declining energy prices in the second half of the year slowed core inflation through 2009. Rising energy prices have filtered through to core PPI again in 2011, but the deceleration in energy prices points to a decelerating core PPI for finished goods in 2012.
With respect to building materials, gypsum prices continue to be the main driver for residential construction in 2012, rising 5.1 percent in February from January on a seasonally adjusted basis, following a January increase of 5.9 percent. This puts February gypsum prices 15.2 percent higher than February last year.
Cement and lumber prices, in contrast, are 2.2 percent and 1.6 percent higher than a year ago, respectively. Overall, prices for inputs to residential construction are 4.4 percent above one year ago.
February 17, 2012
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for January on Thursday. The index for finished goods rose 0.1 percent in January from December, balancing a 0.4 percent increase in the core index and declines in the food (-0.3 percent) and energy (-0.5 percent) indexes, keeping the overall index in line with its relatively flat trajectory of 2011.
The PPI for residential construction moved up a modest 0.6 percent in January with help from soft lumber prices (0.2% increase), but in spite of large increases in cement (2.8% increase) and gypsum (5.9% increase). As we have noted previously
( http://eyeonhousing.wordpress.com/2011/11/03/sharp-rise-in-gypsum-prices-likely-in-new-year/ ),
in late 2011 gypsum producers informed customers of planned price increases for 2012. Some NAHB members have confirmed the higher prices have taken effect, and the PPI provides additional evidence.
It is possible that the pattern of 2010 and 2011 will be repeated, with increases early in the year reversed over subsequent months, but this is an issue we will continue to watch closely.
January 18, 2012
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for December today. The index for finished goods declined 0.1 percent in December from November after oscillating in a narrow range since May. The leveling off paralleled the flattening of energy prices after a sharp run-up earlier in the year.
The PPI for material and supply inputs to residential construction has followed the same basic pattern as the PPI for finished goods, with sharp increases early in the year leveling off by year end.
The PPIs for selected residential construction inputs confirms that the weak housing market has kept price pressure for non-energy related materials at bay with levels flat over the last several years.