The price growth of key building materials has moderated significantly in 2023, according to the latest Producer Price Index (PPI) report. The PPI for goods inputs to residential construction, excluding energy, rose by just 0.2% in July, marking a substantial slowdown compared to previous years. This is the lowest monthly increase observed since prior to the COVID-19 pandemic, with 2023 averaging a modest 0.2% increase, down from 0.7% in 2022 and 1.5% in 2021.
Slowdown in Price Increases
The overall price index for final demand goods rose 0.1% in July, driven largely by a 16.8% decrease in energy prices. The PPI for goods inputs to residential construction, including energy, has seen a 2.2% decrease over the past 12 months. The most recent increase in this index occurred in March 2023. These price fluctuations are key for the construction industry, where material costs play a crucial role in project budgets.
Specific Material Price Trends
- Gypsum Building Materials: Prices for gypsum building materials fell by 0.1% in July, continuing a trend of monthly declines. The 12-month price increase for gypsum materials has slowed significantly, down to 2.6% from 11.1% at the beginning of the year.
- Steel Mill Products: Steel prices fell 7.6% in July, continuing a downward trend after a period of price increases earlier in the year. Steel prices have decreased by 21.0% compared to a year ago and have dropped 29.0% from their peak in December 2021.
- Softwood Lumber: Prices for softwood lumber rose 8.6% in July, marking the largest increase in the past few months. Despite this increase, lumber prices are still more moderate compared to the volatility seen in 2021 and 2022. The difference in reported price increases between softwood lumber and framing lumber is largely due to seasonal adjustments and timing of data collection.
- Ready-Mix Concrete: Concrete prices saw a modest 0.1% increase in July, marking a slowdown compared to 2022. The year-to-date increase for ready-mix concrete prices in 2023 has been 3.3%, significantly lower than last year’s rate of 9.1% in the Northeast.
Freight and Services Costs
In addition to material costs, transportation prices for freight continued to decline. Prices for rail and truck transportation fell by 0.1% and 0.2%, respectively, while the PPI for ocean transportation of freight remained unchanged. These trends suggest ongoing improvements in supply chain efficiency, which have led to a 30.2% decrease in freight costs over the past year.
The PPI for services inputs to residential construction, excluding labor, rose by 1.5% in July, primarily driven by a 5.6% increase in the index for building materials retailers’ gross margins.
Implications for Construction
The moderation of price growth for key building materials offers some relief for the construction sector, which has been grappling with high material costs in recent years. Builders and contractors could benefit from more stable pricing, potentially easing the financial pressure on construction projects. For construction loan customers, this slowdown in material costs may make construction loans more feasible and attractive, providing a glimmer of hope amidst ongoing market challenges.
As material prices stabilize, the construction industry may see more consistent budgeting and forecasting, which could help both builders and consumers navigate the current economic climate.