Trickle Down

We have been having the hardwood floors in our house refinished this week and it’s a great lesson in deflationary economics.

Just 2 years ago I would have had to beg a flooring contractor to come and just give me a quote for my floors because it’s not a big job and they prefer to work on new installations where they make money on the material and the labor. In a bout of frustration I would have called one of the many Chinese shops up in South San Francisco or Brisbane that do this work and they would have done it cheaper than the local contractors but the quality of the work would be a roll of the dice.

In all fairness, we used a Chinese crew for the granite countertops in our kitchen and they did a fantastic job and were 1/2 of the cost of local sources. This isn’t a story about how waves of Asian contractors are putting price pressure on local businesses… quite the opposite actually.

The flooring contractor I’m going with is from Redding, a fact I learned after talking with him at length one day (he does have a 650 area code for a cell phone, so I just assumed). He shared with me that the Redding construction market for new and remodel work basically evaporated in the housing meltdown and he has been forced to come down to the Bay Area to make a living.

I’ve heard this from friends who are local contractors, the market has been inundated with contractors from the Sacramento and (real) Northern California areas. I’ve watched local contractors suddenly being enthusiastic about bidding on our projects and the costs for doing this work declining precipitously  and that is a function of the fierce competition that the market currently has.

I have some other friends who own local businesses that cater to the construction trades (my family used to be in the commercial construction business, now retired) and they tell me that everyone they deal with is sensitive to prices now and this is putting pressure on their margins because the number of businesses that exist to serve the building trades industry far outstrips the demand that is currently being experienced.

I am not an expert in economics but I do have strong respect for Occam’s Razor and the powers of simple observation. When you combine anemic job creation with pricing pressure and rising energy costs (and food prices), well the forecast isn’t positive. We’re in new territory with politicians and bureaucrats telling us that the economy is improving but I’m not seeing a lot of people, regular people, who believe it and they are voting with their wallets.