<img height="1" width="1" src="https://www.facebook.com/tr?id=373327176680496&amp;ev=PageView&amp;noscript=1">

By: Alex Carrick on August 26th, 2021

Print/Save as PDF

Little Letup in U.S. and Canadian Construction Material Cost Increases

Economic News

The headlines are no longer screaming about steeply climbing lumber prices. The ultra-sharp gains are over and a pullback phase has settled in.

Shockingly High Material Cost Hikes Graphic

A moderation in price was expected due to housing starts leveling off and home renovation projects being put on the back burner, as the leisure-time days of summer are replaced by the more frenetically paced days of fall.

July’s Producer Price Index (PPI) for softwood lumber, shown in Table 1, was -16.3% compared with three months ago in April. The latest month-to-month price change was -29.0%.

As Table 1 and Graph 1 set out, however, the price advances for other forestry products, and for a multitude of other inputs used in the building process, have not let up much.

Prices for plywood and particle board/OSB are both higher by double year over year and by one-third over the latest three months (which will be referred to as quarter over quarter or q/q). Month to month in July, plywood was +3%, and particle board/OSB, +7%.

Steel bars, plates, and structural shapes in July were +43.7% year over year, +10.5% over the latest three months, and +6.0% month to month. Iron and steel scrap used in electric-arc steelmaking furnaces was +103.8% y/y, +16.3% q/q, and +0.8% m/m. 

Interestingly, the Consumer Price Index (CPI) for used cars and trucks, the eventual primary source of steel scrap, was also higher by an extraordinary amount in July, +41.7%.

The ‘steel pipe and tube’ PPI in July was +48.8% y/y, +16.4% q/q, and +9.0% m/m.

July’s aluminum mill shapes PPI was +33.2% y/y, +6.9% q/q, and +1.5% m/m.

Some of the other dramatic year over year PPI sub-category increases in July were: gasoline and diesel fuel, a little more than +80%; gypsum, +22%; insulation materials, +12%; air conditioning and heating equipment, about +10%; paints and architectural coatings, also +10%; and flat glass, +9.5%.

The only PPI subindex registering a decline beyond just -0.1% month to month in July, other than softwood lumber’s -29.0%, was copper wire and cable, at -1.6%. On a year-over-year basis, though, ‘copper wire and cable’ was ahead by one-third, +33.1%.

The bottom line is that bid prices are still failing, in epic fashion, to keep up with material cost increases. This is most clearly spelled out in Graph 2, where two PPI measures of material prices are currently ranging from plus one-quarter to plus one-third (+25.4% to +33.1%), while the y/y ‘bid price index’ is only +4.5%. 

The historical performances of the PPI series for 28 building inputs are set out in seven cluster charts (of four graphs each) appearing below.

At the end of this article is Table 2 with Canadian building product prices. The most stunning gains are pointed out with red arrows. The Canadian results generally mirror what has been transpiring in the United States.

The major exception is that the Canadian data only runs through June, a month behind the U.S. figures. Therefore, the recent pullback in lumber prices has not yet been captured.   

Graph 1: U.S. Construction Material Cost Changes
From Producer Price Index (PPI) Series - July 2021
U.S. Construction Material Cost Changes
Data source: Bureau of Labor Statistics (BLS).
Charts: ConstructConnect.
Table 1: U.S. Producer Price Index (PPI) Results
% Change in the July 2021 Index from:
  3 Years   1 Year    6 months   3 months   1 month 
  Ago   Ago   Ago   Ago   Ago
                   
Final Demand/Service/Commodity/Energy/Input:                  
Final Demand Construction 12.8%   4.5%   4.6%   2.8%   1.5%
   New warehouse building construction 13.5%   6.5%   6.3%   4.2%   2.6%
   New school building construction 13.1%   3.3%   3.8%   2.5%   2.4%
   New office building construction 13.5%   5.9%   5.3%   2.8%   1.3%
   New industrial building construction 14.2%   3.9%   3.9%   3.0%   2.6%
   New health care building construction 11.2%   3.2%   4.1%   1.4%   -0.2%
Architectural & engineering services 5.2%   3.3%   0.5%   0.6%   0.2%
Construction machinery & equipment 12.1%   4.5%   2.7%   3.0%   1.2%
Asphalt 0.7%   57.1%   52.1%   1.8%   6.5%
Plastic construction products 29.3%   26.7%   20.1%   10.8%   4.5%
Softwood lumber 47.9%   45.0%   -1.0%   -16.3%   -29.0%
Hardwood lumber 27.4%   45.8%   27.8%   10.4%   6.3%
Millwork 25.9%   21.8%   13.4%   8.0%   0.1%
Plywood 93.7%   102.8%   67.7%   34.7%   2.6%
Particle board & oriented strandboard (OSB) 132.0%   132.5%   56.1%   33.0%   6.8%
Gypsum 13.3%   21.6%   14.3%   8.2%   2.6%
Insulation materials 12.4%   11.8%   7.7%   4.7%   -0.1%
Construction sand, gravel & crushed stone 13.4%   4.1%   2.5%   1.2%   0.2%
Cement 7.1%   3.2%   2.8%   1.7%   -0.1%
Ready-mix concrete 8.5%   2.8%   3.3%   0.9%   0.0%
Precast concrete products 16.9%   9.2%   5.8%   3.5%   1.3%
Prestressed concrete products 12.7%   9.3%   9.8%   7.8%   -0.1%
Brick (clay) 8.9%   4.3%   2.8%   2.2%   0.4%
Coal -3.3%   2.6%   3.3%   0.3%   0.3%
Iron ore 28.6%   23.7%   19.4%   18.6%   14.6%
Iron & steel scrap 35.4%   103.8%   11.3%   16.3%   0.8%
Steel bars, plates & structural shapes 26.1%   43.7%   35.3%   10.5%   6.0%
Steel pipe & tube 33.7%   48.8%   36.4%   16.4%   9.0%
Fabricated structural metal products 29.2%   28.8%   24.7%   14.0%   2.8%
Prefabricated Metal Buildings 39.6%   45.9%   31.7%   18.2%   8.4%
Aluminum mill shapes 9.9%   33.2%   18.4%   6.9%   1.5%
Flat glass 9.5%   7.3%   4.3%   3.3%   0.6%
Paints, architectural coatings 21.6%   9.9%   10.4%   5.7%   4.5%
Lighting fixtures 12.3%   5.0%   4.4%   2.1%   0.9%
Plumbing fixtures & fittings 10.0%   3.5%   2.4%   0.7%   0.2%
Elevators & escalators 9.5%   3.7%   3.5%   1.9%   -0.1%
Heating equipment 16.5%   10.7%   10.2%   3.9%   0.7%
Air conditioning equipment 14.5%   9.0%   6.0%   3.5%   0.8%
Copper wire & cable 23.0%   33.1%   15.4%   7.1%   -1.6%
Regular gasoline unleaded 9.4%   80.6%   53.0%   18.1%   8.5%
Diesel Fuel 26.9%   81.9%   40.0%   16.3%   4.0%
Inputs to new construction 25.7%   25.4%   15.6%   9.2%   0.9%
Inputs to new residential construction 28.7%   27.8%   16.9%   10.1%   0.8%
Inputs to new non-res construction 22.8%   23.1%   14.3%   8.4%   1.0%
   Inputs to commercial construction 22.1%   22.3%   14.0%   8.3%   1.1%
   Inputs to healthcare structures 22.8%   22.3%   13.8%   7.9%   0.8%
   Inputs to industrial structures 22.8%   20.4%   12.5%   7.5%   1.5%
   Inputs to highways & streets 18.3%   20.9%   13.6%   8.4%   1.1%
   Inputs to power & communication structures 21.7%   23.8%   15.1%   8.7%   1.0%
   Inputs to educational & vocational structures 24.2%   22.9%   13.8%   7.7%   0.5%
Construction materials (PPI 'Special Index') 31.6%   33.1%   23.0%   8.8%   0.2%
The 'final demand' indices (at top) reflect the prices paid by owners for the construction of projects. They include material, labor & markups.
The 'service', 'commodity' and 'energy' indices (in the middle section of the table) are based on 'factory-gate' sales prices.
The 'input' indices (at bottom) reflect costs faced by contractors. They exclude capital investment (i.e., machinery & equipment), labor & imports.
The 'input' indices are built up from the 'service' (design, legal, transport & warehousing, etc.) 'commodity' and 'energy' indices.
Data source: Producer Price Index (PPI) series from Bureau of Labor Statistics (BLS).
Table: ConstructConnect.
Graph 2: U.S. Construction Bid Prices vs Material Input Costs - July 2021
U.S. Construction Material Cost Changes
Latest data points are for July 2021.
Chart: ConstructConnect.
Data source: Bureau of Labor Statistics, Producer Price Index data set.
Chart: ConstructConnect.
Graph Cluster 1 - Forestry Products: U.S. Construction Material Costs (1) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (1) - From Producer Price Index (PPI) Series
The last data points are for July, 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph Cluster 2 - Steel Products: U.S. Construction Material Costs (2) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (2) - From Producer Price Index (PPI) Series
The last data points are for July, 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph Cluster 3 - Cement: U.S. Construction Material Costs (3) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (3) - From Producer Price Index (PPI) Series
The last data points are for July, 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph Cluster 4 - Base Inputs: U.S. Construction Material Costs (4) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (4) - From Producer Price Index (PPI) Series
The last data points are for July, 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph Cluster 5 - Energy-Related: U.S. Construction Material Costs (5) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (5) - From Producer Price Index (PPI) Series
The last data points are for July, 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph Cluster 6 - Accessories & Arterial: U.S. Construction Material Costs (6) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (5) - From Producer Price Index (PPI) Series
The last data points are for July, 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph Cluster 7 - Equipment: U.S. Construction Material Costs (7) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (5) - From Producer Price Index (PPI) Series
The last data points are for July, 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Table 2: Canadian Construction Material Costs
Based on Industrial Product Price Index (IPPI) Series from Statistics Canada
The most dramatic increases are denoted with red arrows - e.g., softwood lumber +169.7%, year over year.
Data source: Statistics Canada's Industrial Product Price Index (IPPI) series, Table 18-10-0266-01.
Table: ConstructConnect.

CanaData 2021

About Alex Carrick

Alex Carrick is Chief Economist for ConstructConnect. He has delivered presentations throughout North America on the U.S., Canadian and world construction outlooks. Mr. Carrick has been with the company since 1985.