Construction materials prices up again in December

The producer price index (PPI) report from the Bureau of Labor Statistics (BLS) stated that construction materials prices were up 0.3 percent month-over-month in December on a seasonally adjusted basis. The index of components and materials for construction was up 1.4 percent from its year-earlier level.

Overall prices for processed goods for intermediate demand were down 0.6 percent for the month. A fall in the prices of processed fuels and lubricants was responsible for the decline since most other components of the index were up for the month. The processed goods for intermediate demand index was 2.7 percent lower than its year-earlier level.

For reference, the changes in these indices compare with a 3.4 percent rise in the all-items consumer price index (CPI-U) for the 12 months ending in December. The seasonally adjusted December CPI-U was up 0.3 percentage point from November’s level. Energy prices were up 0.4 percent for the month but were down 2.0 percent year-over-year. The shelter portion of the CPI-U was up 0.5 percent for the month and was 6.2 percent higher than its year-ago level. Rent of primary residence was up 0.4 percent for the month and 6.5 percent for the year.

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 first 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 the month before (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 December that would have been December 12. In the January report, the data collection date will be January 9.

The softwood lumber price index was reported to rise by 0.2 percent in December, the first increase since July. While lumber prices were rising sharply even before general price inflation arrived in May 2021, the recent rate of increase in the price of softwood lumber has not kept up with the general rate of price inflation as measured by the unadjusted CPI-U.

The soft plywood price index was also reported to rise 0.2 percent in December. Unlike in recent months, there was only an insignificant adjustment made to its index for the month before.

Looking ahead, Business Insider reported that the market price of lumber closed on December 12 at $536 and rose to $546 on January 9. Between those dates, prices were as high as $563. Lumber prices in the futures markets also seem to signal modest upward price pressure. The May 2024 contract closed at $576 on January 9.

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.

The price index for power wire and cable was reported to fall by 1.93 percent this month on top of downward revisions of 1.0 percent made to its price indexes for the two prior months. However, the post-COVID rise in the power wire and cable price index remains by far the highest of any of the construction materials prices that we track.

The construction materials prices for many of the other commodities in this grouping have been trending lower lately. While asphalt roofing and siding has been an exception to this trend for some time now, it was joined this month by copper wire and by hot rolled steel bars, both of which saw their price indexes jump by 1.3 percent or more for the month.

Looking ahead at prices for underlying materials, MarketWatch reported that the NYSE American steel index is down from the high of $2,257 it reached on December 27, but is up for the month. It closed at $2,022 on December 12 and closed at $2,114 on January 9. Meanwhile, steel futures diverged with near-term contracts rising and longer-term contracts declining. The May 2024 contract closed 6.6 percent lower on January 9 than it did on December 12. The futures market is predicting that steel prices will trend lower in the first few months of 2024.

The price of copper closed at $3.76 per pound on January 9 down $0.03 since December 12. It had closed as high as $3.96 per pound between those dates. Its low for the period was $3.76 per pound on January 9.

The price of aluminum is up from our last reading. It closed on January 9 at $2,250, up $129 from its level on December 12. However, it had spiked as high as $2,387 in late December.

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

There continue to be odd things happening with the data regarding many of these construction materials prices.

For the fourth month in a row, the monthly construction materials price index for enameled iron and metal sanitary ware was reported to rise, this month by 1.9 percent. However, the reported index is exactly unchanged from the preliminary value in the prior month’s report and the “rise” is entirely due to the prior month’s value being revised lower.

There are other construction materials price indexes that have been suspiciously stable recently. The index for builder’s hardware has been reported to be the exact same value since April. The index for plumbing fixtures has been reported to be the exact same value since May. The index for electrical lighting fixtures has changed only in the last two digits of a 6-digit number since June.

Normal variations in data sampling from month to month would be expected to cause more variation than this.

The full current BLS report can be found here.