Lumber & construction materials lead all categories in annual wholesale durable goods sales gains, with the 78% price increase in softwood lumber a major factor.

By Manuel Gutierrez, Consulting Economist to NKBA

Driven by the price hikes in construction supplies — especially lumber — sales from merchant wholesalers totaled $568 billion in March, up 4.6% from the previous month, and a strong 19% higher than a year ago (although March 2020 marked the start of pandemic-related shutdowns).

Merchant wholesalers are a key link in the product distribution chain from manufacturer to final consumer. Although their sales activity is generally not given much prominence in economic news, they play a large role in the economy by storing or “warehousing” goods and servicing stores or businesses along that distribution chain.

Sales from wholesalers have grown at an annual average of 10% since 1992, much higher than the 3% average for inflation over the same period.

The two major components of wholesale sales, Durables and Non-Durables, are almost equal in share, although Non-Durables captured a slightly higher 52.5% of the total with $298 billion in sales in March.

Lumber & construction materials and home furnishings are near the top in wholesale durable goods sales gains, up 9% and 5%, respectively, in just in the past month, due largely to continued price inflation.

Figure 1 displays the long-term trends of these two segments, which follow similar directional paths. Non-Durables have accounted for higher sales since 2008.

The economic recession that year, like other economic recessions highlighted by shaded bars in the chart, take a heavier toll on Durable goods than on Non-Durables. This is because durable products involve larger monetary expenditures. For instance, the cost of a vehicle or a piece of machinery, which are Durable, far outweigh Non-Durable items such as food or drugs.

Additionally, most if not all Durablegoods are discretionary, which means there is no urgency to purchase them new or replace them when conditions don’t warrant. An automobile can be used for another year if needed. There is no such luxury of time for items that are required to be consumed on a daily basis, regardless of a recession.

Sales of Non-Durable goods increased 5.5% in March to $298 billion, while Durable goods rose by a slightly more modest 3.7% to $270 for the month.

On an annual basis, the same pattern exists, with Non-Durablesrising by more than by 20%, compared to 17.8 % for Durables.

Generally, products used in K&B and construction businesses  fall within the Durables group. These include lumber and construction materials, home furnishings and household appliances.They are highlighted in Figure 2, with the left panel showing changes in the last month, while the right side includes increases over the 12-month period ended in March.

Compared to February sales, two of these categories exceeded the overall Durable increase of 3.7%. They are lumber & construction materials, with a 9% increase for the month, and home furnishings, up 5% from February.

These are no surprise, given the price inflation pressures within the building and remodeling industry. Annually, only lumber & construction materials exceeded the overall 17.8% increase. This hike is driven mostly by the price of lumber itself, which has risen by 59% over the last year. Softwood lumber, the most commonly used in construction, is up 78% over that 12-month period.

Within the Non-Durables segment, where sales increased by 5.5% for the month, apparel is up by nearly 14% and Petroleum Products are almost 11% higher.

Compared to last year, there are several product categories in this segment that show rapid growth. Topping them is petroleum products, which are running just under 70% ahead of last year. This is mainly due to the rise in gasoline prices because of greater demand from consumers, who are now driving more miles this year compared to 2020, when lockdowns were in place.

The category with the largest increase this month, apparel, is the result of a change in work habits imposed by the pandemic. Throughout most of last year, many were working from home, reducing the need to purchase clothing for work. That pattern is reversing as more people begin to return to their places of business, even if on a part-time basis.

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