US Building Materials Costs in Residential Construction Inch Higher in July

A closer look at the Bureau of Labor Statistics June Producer Price Index (PPI) report (8-11-23), with further analysis provided by the National Association of Home Builders (NAHB), reveals that the prices of goods used in residential construction, excluding energy, increased 0.2% in July, not seasonally adjusted.

The NAHB notes that building materials price growth has slowed considerably in 2023 with an average monthly increase of 0.2%—down from 0.7% in 2022 and 1.5% in 2021. Not since before the COVID-19 pandemic has the average been lower (0.0% in 2019).

The PPI breakdown for July is a follows:

• Seasonally adjusted, the PPI for softwood lumber increased 8.6% in July—the third and largest increase over the past four months, during which the index has climbed 16.4%. The unadjusted softwood lumber PPI increased 4.4%.
• The PPI for gypsum building materials declined 0.1% in July, the fourth consecutive monthly decline. For the first seven months of 2023, year-over-year prices increases have slowed from 11.1% to 2.6%. The average 12-month increase this year has been 8.5% compared to 20.2% in 2022.
• Ready-mix concrete (RMC) prices rose 0.1% in July, following a 0.1% decline in June. The NAHB notes that,like gypsum building materials prices, the monthly price increases for concrete have slowed substantially in 2023. The PPI for RMC has increased an average 0.6% per month this year, which is the lowest average since 2020. Prices have increased 3.3% year-to-date, approximately half of the increase as the same period in 2022.
• Steel mill product pricing (i.e., the raw materials used to make intermediate and finished steel goods) declined 7.6% in July, after decreasing 0.6% in June (not seasonally adjusted). Since climbing 12.4% between January and May, steel mill product prices have declined 0.8%. Year-over-year, the index is 21.0% lower and has decreased 29.0% since reaching its all-time high in December 2021.
• The PPI for service inputs to residential construction, excluding labor, increased 1.5% in July, following no change in June. The NAHB says the price increase was primarily driven by a 5.6% increase in the index for building materials retailers’ gross margins, which account for nearly one-third of the services PPI. Prices have declined 8.8% year-over-year but have stabilized in 2023 (although down 0.1% through June).
• The PPI for trucking freight declined 0.1%, and rail transportation fell 0.2%. The PPI for ocean transportation of freight was unchanged. Additionally, the index for arrangement of freight and cargo (i.e., shipping logistics services) declined 2.2% over the month of July. Year-over-year, prices have decreased 30.2% as both international and domestic supply chain bottlenecks have eased.