As construction input prices weaken, lumber costs remain high

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As construction input prices weaken, lumber costs remain high

By Andy Carlo - 12/11/2020

Construction prices appear to be taking a step back.

But that’s not necessarily the case for the cost of lumber.

Based on analysis of the latest Producer Price Index issued by the Bureau of Labor Statistics, construction input prices slipped 0.5% in November compared to the previous month, according to Associated Builders and Contractors (ABC).

Nonresidential construction input prices slipped about 0.4% in November. But construction input prices increased 0.9% between November 2019 and November 2020. 

Nonresidential construction input prices are up just 0.3% over that span. 

The biggest increases in overall construction input prices are attributable to softwood lumber prices, which are 37.2% higher than in November 2019.

The National Association of Home Builders reported earlier this week that lumber prices continue to remain high. Prices peaked at an all-time high of roughly $950 per thousand board feet in September before slowly moving down to around $550 per thousand board feet last month.

However, prices have been moving upward for the past three weeks, and now stand slightly above $600 per thousand board feet, the NAHB said.

“There has been some upward pressure on certain input prices in recent weeks, including energy prices,” said ABC Chief Economist Anirban Basu. “This is a natural outgrowth of a strong economic rebound from the earlier stages of the pandemic and efforts by a group of suppliers to constrain the supply of inputs, particularly of oil.

“There are now signs, however, that the pace of economic recovery in the United States and in many other parts of the world has slowed meaningfully,” said Basu. “Employment growth has stagnated.”

Earlier this week, NABH reported that construction hiring has slowed in recent months.

The ABC also reported this week that its Construction Backlog Indicator is at the lowest level since early 2011. 

The indicator declined to 7.2 months in November, a decrease of 0.5 months from October’s reading, according to an ABC member survey conducted from Nov. 20 to Dec. 2. Additionally, the backlog is 1.7 months lower than in November 2019.

A slowdown in construction spending is being attributed to spiking COVID infection rates, the ABC said. The end result could be a drop in input price inflation. 

“While input price inflation is unlikely to represent a major challenge for contractors in the near-term, there is a possibility that input prices could surge at some point next year,” said Basu. “Once vaccinations become broadly available, the global economy is likely to gallop forward, creating significant growth in demand and driving prices higher. Those contractors who utilize softwood lumber are especially aware of such dynamics.”

"Earlier this year, suppliers were unprepared for the rush of softwood lumber package orders as the U.S. single-family housing construction market took off,” Basu noted. “The result was a profound increase in softwood lumber prices, which has since begun to abate as the quantity supplied catches up to the quantity demanded. The bottom line is that contractors should be aware of the possibility of rapidly rising input prices at some point next year as they enter into contractual commitments.”

Associated Builders and Contractors is a national construction industry trade association representing more than 21,000 members.

The latest Consumer Price Index Summary is available here.