Higher Softwood Lumber Prices Continue to Impact Cost of US Residential Building Materials

A closer look at the Bureau of Labor Statistics (BLS) Producer Price Index (PPI) for February, with additional analysis by the National Association of Home Builders (NAHB), reveals that prices for inputs to new residential construction—excluding capital investment, labor, and imports—increased 0.5% in February. The increase in January was revised downward to 1.1%.

The PPI measures prices that domestic producers receive for their goods and services. This differs from the Consumer Price Index (CPI), which measures what consumers pay and includes both domestic products as well as imports.

Year-over-year, the inputs to the New Residential Construction Price Index rose 0.7%. The index consists of two components: goods, which increased 1.2%, and services, which declined 0.1%. For comparison, the total final demand index, which tracks all goods and services across the economy, rose 3.2%, with goods up 1.7% and services up 3.9%.

Among materials used in residential construction, lumber and wood products rank third in importance for the Inputs to New Residential Construction Index, following nonmetallic mineral products and metal products. Key lumber and wood products include general millwork, prefabricated structural members, not-edge-worked softwood lumber, softwood veneer/plywood, and hardwood veneer/plywood. Prices for these wood commodities saw little growth for most of 2024. Currently, softwood lumber prices are 11.7% higher than a year ago, with a 3.0% increase month-over-month. This marks the fourth consecutive month of annual price growth exceeding 10% for softwood lumber.

While prices of service inputs to residential construction declined 0.1% over the past year, they increased 0.4% in February from January. The price index for service inputs is divided into three components: trade services; transportation and warehousing services; and services excluding trade, transportation, and warehousing. Trade services, the largest component at approximately 60%, declined 1.5% year-over-year. Services excluding trade, transportation, and warehousing (about 29% of the index) rose 1.6%, while transportation and warehousing services (around 11%) increased 2.2% from February 2024.