Inflation at the Producer Level in May – Little Changed

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for May. Inflation in prices received by producers (prior to sales to consumers) fell 0.2% in May from April. This follows increases of 0.5% and 0.6% in March and April. On an unadjusted basis, prices were up 2.0% over the last 12 months.

Among building materials, softwood lumber prices rose 1.0% in May from April. Prices are currently 28% above the average level over 2011, down from 38% above that level at the recent peak in April 2013.

OSB prices have flattened out in 2014, declining 0.7% in May. Prices are currently 23% above the average level over 2011, down from 107% above that level at the recent peak in March 2013.

Gypsum prices declined 0.7% in May. Prices are currently 41% above the average level over 2011, down from 49% above that level at the recent peak in February 2014.

 

Inflation at the Producer Level in April – Not So Fast

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for April. Inflation in prices received by producers (prior to sales to consumers) rose 0.6% in April from March. This increase was dominated by increases in food goods and trade services. Excluding the more volatile, and weather affected categories of food, trade and energy, prices increased a more modest 0.3% in both March and April.

Among building materials, softwood lumber prices are down 4.0% in April from March, and 8.2% from a peak one year ago. OSB prices continued to tread water so far in 2014, declining 0.6% in April, after a sharp 2013 reversal of the steep run-up in prices in 2012. OSB prices remain 23.8% above their average level in 2011. Gypsum prices declined 3.7% in April, the second monthly decline, but remain 41.9% above their average 2011 level.

 

Producer Prices in February – Well Restrained

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for February. Overall, inflation at the producer level declined -0.1% in February from January (seasonally adjusted), balancing a 0.4% increase in prices for goods and a 0.3% decline in prices for services. On an unadjusted basis, inflation slowed to 0.9% for the 12 month period ending in February, from 1.2% in January.

Among building materials, softwood lumber prices rose 2.2% in February from January, OSB prices declined 0.7%, and gypsum prices rose 4.1%.

 

Producer Prices in January – Big Changes at the Top, Not Much at the Bottom

The Bureau of Labor Statistics (BLS) released major changes to the Producer Price Indexes (PPI) program with the data for January. The objective was to realign the aggregate indexes with the contours of a dynamic economy, incorporating indexes for services, construction, government purchases, and exports into the broader aggregate indexes. (For more information see new PPI.) The results show a little less core inflation (excluding food and energy) at the producer level, but the same pattern of prices driven by swings in energy prices over the last few years.

Overall, inflation at the producer level maintained its modest pace, rising 0.2% in January from December, and 1.2% for the 12 month period ending in January.

The PPIs for individual building materials were unaffected by the changes to the aggregate indexes. Softwood lumber prices moved up modestly in January after softening at the end of 2013. OSB prices firmed slightly after steep declines from early 2013 peaks.

Gypsum prices jumped 7.4% in January from December, a significant down payment on the price increases some producers announced for the coming year. This increase brings gypsum prices to 99.5% of their housing boom peaks.

 

Producer Prices in December – Energy Increases Push Prices Up

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for December. Producer prices for finished goods rose 0.4% in December on the strength of energy prices which rose 1.6% in December from November. Energy prices have been the main driver of overall prices in 2013. In December increases in energy and core prices (excluding food and energy) were partially offset by declines in food prices.

Softwood lumber prices softened after increasing through the second half of 2013. OSB prices continued their descent, although at a slower pace than earlier in the year.

Gypsum prices edged up in December finishing the year about where they started. Average gypsum prices in 2013 were 16.6% above 2012 levels, which were 14.1% above 2011 levels.

 

Producer Prices in October – Energy Declines Push Prices Down

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for October. Producer prices for finished goods declined by 0.2% in October following a 0.1% decline in September. Increases in core prices (excluding food and energy) of 0.2% and food prices of 0.8% were offset by a 1.5% decline in energy prices, pushing the overall index down.

Wood products prices edged up as the monthly PPIs are beginning to reflect increases in weekly measures. Gypsum prices declined modestly from a recent May peak but the outlook is for higher prices in 2014 given announced planned increases for 2014 from National Gypsum.

 

Producer Prices in August – Wood Products Prices Mixed, Gypsum Threatens Again

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for August. Producer prices for finished goods rose 0.3% in August driven by increases in food (0.6%) and energy (0.8%) prices. Excluding food and energy, the core index was flat.

The PPI for softwood lumber rose 2.6% from July to August after declining 2.3% from June to July. Strong demand from China helped the rebound. Offshore markets have gained favor as recent price declines have triggered the return of the export tax on Canadian shipments to the US.

OSB prices declined 9.5% in August, bringing them to their lowest level since the run-up that began in early 2012, but leaving them still 34.6% higher than that low point.

Gypsum prices declined slightly in July and August, a two month decline of 1.8%, but the prospect of price relief was short-lived. Prices are currently at 92.6% of their peak housing boom levels and at least one major producer, National Gypsum, has announced a 20% price hike effective with 2014 shipments. This price increase is eerily similar to the hikes in early 2012 and 2013.

 

Producer Prices in July – Flat Prices Overall, Wood Products Prices Extend Their Descent

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for July. Producer prices for finished goods were flat in July after rising 0.8% in June and 0.5% in May. Excluding food and energy, the core index continued its recent stability rising 0.1%. A 0.2% monthly decline in energy prices and flat food prices held the headline index flat despite the 0.1% increase in core prices.

PPIs for softwood lumber and OSB continued the descent that began earlier this year. Softwood lumber prices declined 2.3% from June to July, extending the decline from the recent April peak to 16.6%. However, softwood lumber prices are still 9.9% above prices from one year ago before the sharp run-up in late 2012 and early 2013.

OSB prices declined 12.2% in July, extending the decline from the March peak to 28.4%. OSB prices remain 48.8% above prices prior to the housing recovery that began in 2012.

Weekly indicators show wood prices rebounding somewhat in recent weeks, but the sharp declines remain largely intact. These declines are based on significant increases in productive capacity in the lumber and OSB industries which are likely to be added to rather than subtracted from as the housing recovery continues.

The PPI for gypsum dropped slightly in June and July. There have been some plant re-openings and reconfigurations in the industry but it remains to be seen whether recent declines are the beginning of a normalization of gypsum prices. Gypsum prices remain 37.3% above housing bust lows and 98.2% of housing boom peaks.

 

Building Material Price Growth Slows

After a period of significant increases, the growth in the prices of building materials has slowed according to June Producer Price data from the Bureau of Labor Statistics (BLS).

Year-over-year growth in gypsum prices slowed by 3.8 percentage points to 15.6%. Annual softwood lumber price growth decelerated by 8.7 percentage points to 8.0%. And Oriented Strand Board (OSB) prices grew by 37.0% year-over-year in June, still high, but 17.8 percentage points less than the year-over-year growth recorded in May.

The slowing of the growth of building material prices is good news for builders and bears watching for the rest of 2013.

For the economy as a whole, producer prices for finished goods rose by 0.8% on a seasonally adjusted month-over-month basis in June, the second consecutive month of growth.

Builders and Lumber Dealers Both Report Shortages of Key Materials

The home building industry is facing emerging shortages of key building materials like lumber and wall board, according to surveys conducted by the National Association of Home Builders (NAHB) and National Lumber and Building Material Dealers Association (NLBMDA) in May.

Among builders, the highest incidence of shortages was for oriented strand board (OSB), with 22 percent of builders reporting shortages, followed by gypsum wall board (20 percent), framing lumber (18 percent) and plywood (also 18 percent).  Except for wall board, the incidence of shortages for these products was higher among the lumber dealers, with 27 to 28 percent of dealers reporting shortages of OSB and plywood, and 36 percent reporting a shortage of framing lumber.

The builder and lumber dealer surveys both asked about shortages for the same list of 24 building products and materials.  The top 12 (based on share of builders reporting shortages) are shown below.

For most of the 24 products, the share of builders reporting a shortage was considerably higher in May of 2013 than in 2011 or 2012. For example, the share of builders reporting a shortage of framing lumber jumped from 3 to 4 percent in 2011 and 2012 to 18 percent in May of 2013.  The share had been as high as 24 percent in October of 2004, but starts at that time were over 2 million.

Although the shares of reported shortages are not as high now as they were in 2004 or 2005, the recent surges are significant when you take the early stage of the housing recovery into account.  In 2004 and 2005 the home building industry was producing over 1.8 million new homes a year.  Although the current rate of new housing starts is still below 1 million, supply constraints like shortages of materials, lots, and labor have emerged as barriers to a more robust recovery.

The final study, showing complete results from both surveys, is available HERE.