Building Materials and Lumber Prices Rise in November

According to the U.S. Bureau of Labor Statistics’ most current Producer Price Index (PPI) data, prices for inputs to new residential construction—excluding capital investment, labor, and imports—remained steady in November.

In November, this indicator increased by 0.7% over the previous year, following a 0.3% increase in October.

The new residential construction price index has two components: commodities and services. The products component rose 1.2% year on year, while services fell 0.3%.

In November, the total final demand index rose 3.0% year on year, with final demand for commodities rising 1.1% and final demand for services rising 3.9%.

The Goods

The goods component represents approximately 60% of the total residential building inputs price index. The price of input commodities for new home building remained constant in November from October.

The input goods to residential building index can be further divided into two independent components, one measuring energy inputs and the other measuring goods minus energy inputs.

The latter of the two components essentially indicates building materials used in residential construction, which accounts for around 93% of the goods index.

Prices for residential construction inputs, excluding electricity, rose 2.3% in November compared to the previous year. This year-over-year growth was higher than in October (2.0%) and the greatest since June of this year. The growth rate for November 2023 was 1.2%.

In November, the index for residential construction energy inputs declined 10.9% year on year, marking the fourth consecutive annual decline in input energy prices.

The graph below depicts data for household goods inputs since January 1, 2023. Energy costs have been falling for the past year, with only two periods of rise in 2024.

At the individual commodity level, excluding energy, the five most important building materials for the new residential construction index were ready-mix concrete, general millwork, paving mixtures/blocks, sheet metal products, and wood office furniture/store fixtures.

Prices for these items increased across the board compared to the previous year. Ready-mix concrete increased by 3.9%, wood office furniture and store fittings by 3.4%, general millwork by 2.8%, paving mixtures and blocks by 1.6%, and sheet metal items by 0.5%.

Unsurprisingly, considering how energy costs have trended this year, the input commodity with the greatest price drop during the year was No. 2 diesel, which fell by 20.6%.

The most important lumber and wood products for new residential construction were general millwork, prefabricated structural components, softwood veneer/plywood, softwood lumber (not edge worked), and hardwood veneer/plywood.

The input commodity in residential construction with the biggest year-over-year percent rise (across all input commodities) in November was softwood lumber (not edge worked), which increased 13.7% from November 2023.

This is particularly noteworthy because none of the other top wood commodities experienced a year-over-year shift greater than 3% in November.

Lumber supplies have pushed prices upward over the last month as the sawmill industry adjusts to the mill closures earlier this year.

Higher timber demand as home building recovers owing to reduced loan rates is expected to drive up lumber prices.

The Services

In November, the prices of inputs for residential construction services were constant from October. The price index for service inputs to residential construction is divided into three categories: trade services, transportation and warehousing services, and services excluding trade, transportation, and warehousing.

The most major component is trade services (about 60%), followed by services other than trade, transportation, and warehousing (approximately 29%), and finally transportation and warehousing services (around 11%).

Trade services, the largest component, fell 1.2% in November compared to last year, following a 1.5% decline in October.

[Read more about this topic on Eyeonhousing.org]