Charts: Recent Lumber Volatility Uncharted Territory

Prices paid for goods used in residential construction ex-energy decreased 0.7% in August (not seasonally adjusted), according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics. The decrease was largely driven by a decline in lumber and wood products prices and was the first monthly decline since the start of the last recession.  The price index of services inputs to residential construction also decreased in August as smaller gross profit margins of building materials retailers outweighed increases in the prices of freight transportation and other services.

Despite the monthly decline, building materials prices remain 12.3% higher than they were at the beginning of 2021.  Prices increased 2.1% over the same period in 2020.  Similarly, the price of services inputs to residential construction increased 6.6% from January to August 2020 but has already climbed 12.5% thus far in 2021.

Softwood Lumber

The PPI for softwood lumber (seasonally adjusted) decreased 27.7% in August and has declined 49.0% since May. The steep two-month decrease comes on the heels of an unexpectedly mild 0.7% decline in June that was largely the result of PPI methodology.  The PPI of most durable goods for a given month is largely based on prices paid for goods shipped in the survey month. This can result in lags relative to cash market prices during periods of long lead times.

Although the direction of the index value change is encouraging, the continued volatility is not.  Price volatility remains at an all-time high for a 12-month period.