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Materials Cost for Single-Family Construction Rising Again
Chief Economist Jim Haughey analyzes the May's Producer Price Index in light of home building
Jim Haughey, Chief Economist, Reed Construction Data
June 16, 2009
HousingZone
The price index for materials used in single-family house construction inched up 0.1 percent in May after dropping 5.3 percent over the last seven months. The Producer Price Index (PPI) for single-family construction is calculated monthly by the Bureau of Labor Statistics from a survey of manufacturers and wholesalers. Energy and metals rose enough to offset declining prices for plywood, lumber and gypsum products. Materials cost rose more substantially for other construction sectors including a 2.1 percent monthly gain for highway construction and a 0.2 percent increase for multifamily construction.
Average May prices fell 2.4 percent for gypsum products, 2.1 percent for softwood lumber and 0.7 percent for softwood plywood. In the past year, lumber prices dropped 36 percent, gypsum products 22 percent and plywood prices 17 percent. Further small declines are likely in the next few months, but the long price collapse is nearing an end now that housing starts have stopped declining and are set to increase steadily for several years.
The only significant price increases in May were for asphalt (at the refinery) 8.6 percent, diesel fuel 4.4 percent and concrete block 3.8 percent. Road asphalt prices have not yet caught up with the recent rise in crude oil prices, so one or more big monthly jumps are still ahead. Similarly, diesel fuel price increases are lagging crude oil price increases because of high inventories of refined products. Generally, diesel prices will continue to rise at a 10-15 percent annual pace through next year, although prices have been steady in the month since the May price survey was done. The increase in concrete block prices is due to temporarily lean inventories. Cement prices were unchanged in May and prices declined for most other concrete products.
For the whole economy, prices increased 0.2 percent in May but were 4.7 percent below a year ago. The total construction materials index shows about the same pattern. Prices rose 0.6 percent in May but were 5.5 percent below a year ago. The recession has created enough slack to keep inflation in the 0.0-1.0 percent range for the rest of the year, but it will be more for single-family construction where spending is recovering earlier than in the rest of the economy. RELATED ARTICLES Construction Materials Prices Trend Lower in April
May Single-Family Home Starts Jump to 6-Month High
Jim Haughey's Analysis of May's Economic Climate
© 2009, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.