Construction materials price decline continues

The January producer price index (PPI) report from the Bureau of Labor Statistics (BLS) stated that construction materials prices fell 0.2 percent in the month, seasonally adjusted, the fifth monthly decline in a row. The index was 4.4 percent higher than its year-earlier level.

Overall prices for processed goods for intermediate demand rose by 1.0 percent in the month as the price index for fuels and lubricants rose 5.4 percent. The processed goods for intermediate demand index was 3.8 percent higher than its year-ago level.

For reference, the changes in these indices compare with a 6.4 percent rise in the all-items consumer price index (CPI-U) for the 12 months ending in January. The seasonally adjusted January CPI-U was up 0.5 percent from November’s level. The shelter portion of the CPI-U was up 0.7 percent for the month and was 7.9 percent higher than its year-ago level.

Yield Pro compiled the BLS reported changes for our standard list of construction materials prices. These are prices of materials which directly impact the cost of constructing an apartment building. The two right hand columns of the table provide the percent change in the price of the commodity from a year earlier (12 Mo PC Change) and the percent change in price from January 2022 (1 Mo PC Change). If no price data is available for a given commodity, the change is listed as N/A.

The pre-COVID column lists the change in the current construction materials prices relative to the average of prices from December 2019 through February 2020, before the pandemic impacted the economy. This may give a truer idea of the magnitude of the recent price increases for materials, such as lumber, whose prices were already rising sharply last year, than does the 12 Mo PC Change column. 

The first chart, below, shows the price index history for wood products over the past 37 months. Note that the prices used by the BLS in compiling the indexes are collected on the Tuesday of the week containing the 13^th day of the month. In January 2022 that would have been January 10. In February 2023, the data collection date will be February 14.

The prices of three of the four categories of wood products we track either fell or remained unchanged this month. The price of softwood lumber fell 5.1 percent, the largest decline of the commodities we track. The exception to the price drops was hardwood lumber, whose price was reported to rise 9.2 percent on the month. In addition, last month’s reported price for hardwood lumber was revised higher by 4.4 percent making it by far the month-over-month price rise leader of the commodities we track. However, its price had been on a downward trend recently, so it is still down year-over-year.

Markets Insider reported that the market price of lumber spiked toward the latter half of January but has fallen recently. It closed on January 10 at $348, traded as high as $524 on January 31, and fell to $403 on February 14. Lumber prices in the futures markets also surged and then fell, leaving them near their values of one month earlier. The March 2023 contract closed at $403 on February 14, down $25 since our last report, while the May 2023 contract closed at $426, down $5.

The next chart, below, shows the recent history of several other construction materials prices. These are relatively simple commodities whose prices are strongly driven by those of the materials of which they are comprised.

This month, the price of power wire and cable took a pause from its recent runup. However, its price increases, both year-over-year and from its pre-pandemic level, remain the highest of any of the commodities we track. The price of copper wire and cable was reported to rise for the month of January despite its price indexes for October, November and December all being revised higher. The price of hot rolled steel products fell again this month despite the price of steel trending upward since October.

Looking at prices for underlying materials, MarketWatch reports that the NYSE American steel index rose in late January, fell in early February, but has risen recently. It closed on February 14 at $2018, up $129, or 7 percent, from its level of a month ago. Steel futures have moved steadily higher since mid-January. The March 2023 contract closed on February 14 up 11 percent from its level on January 10. The May 2023 contract closed up 12 percent over the same time frame.

The price of copper also surged and then fell in January. It closed at $4.08 per pound on February 14, matching its closing price on January 10. However, it had closed as high as $4.27 per pound in late January.

The price of aluminum has recently also fallen from the highs it reached in January. It closed on February 14 at $2,417, down slightly from its close on January 10 and down $236 from its January high.

Price changes for several of the more finished goods from our sample are illustrated in the final chart, below.

The price of plumbing fixtures was up by 1.6 percent while that of enameled iron products was up by 1.5 percent for the month. These are among the largest monthly increases in our table. The price index of furnaces and heaters was up only 0.1 percent for the month but it is still up double digits year-over-year.

The full BLS report can be found here.