I had a conversation with a client of mine yesterday about construction contractor pricing that has struck a hidden nerve in me. I am a finish carpenter and have been working with this client for 4 years doing various things for a certain price. When the market fell off the cliff last fall he lost millions in capital investments of various sorts and ultimately has had a serious change in lifestyle. I've been getting new bids for him so we can continue to finish a guest house and continually "beating up the contractors" for a lower price. I've dropped my price by ten percent not because I was asked to but because I felt it necessary to have a clean conscience when I ask for lower pricing from everyone else. The economics of it make sense to me; less work available (demand) more contractors out of work (supply)= lower prices. Pretty simple stuff, but when you take into account that my overall cost of doing business has not come down you get a divergence in price versus cost (hence my struck nerve). Now would this divergence be considered bullish or bearish? I guess it would depend on your position in the divergence; client is bullish and contractor is bearish. Now what does all of this mean? I would think that businesses that are able to decrease their cost of doing business and bank some profits (as we've seen this earnings season) are positioning themselves to spring out of this contraction with great force, which will ultimately drive this economy higher. I guess the question is will the majority of businesses have bullish divergence or bearish divergence? Just a thought.
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