Bad news on the price of tools. (morphing into OT)

[Brian Weick]

And to think all I thought I was doing was pointing out if you are thinking about buying a new tool you may want to do it soon.

Dave,

Seriously,
~ thanks for your thoughts, you are correct, they are going to go up and I know exactly where your coming from Dave ~ your going to get all kinds of opinions and comments on all kinds of forums ~ just the nature of human interaction through the WWW, so don't take it personally , been there ,done that, and don't worry about it anymore. Nobody here means any harm in what they are trying to say or express, that's for sure, sometimes I am taken the wrong way as well so your not alone, and most the time it is because i did not explain myself properly ~,,,,, oh well~ no ones perfect ~
Brian

[Bruce Benjamin]

[quote=Steve Schoene;864312]

I don't believe the fed. Their inflation index proportions are wrong, and don't accurately reflect the buying power of the dollar.

All in all, inflation has remained relatively well in check. It's not accelerating very dramatically at all. Inflation is a rise in average prices. Increases in prices of gasoline may, or may not contribute to inflation. Even if fuel is a component of cost for a great many products, that does not mean that the prices for those products will rise. Sometimes, costs rise, prices remain constant, and profits and/or wages or rents fall in reaction to the input cost increases. Markets don't guarantee that costs of production can be passed on to buyers. Eventually, that must be true, but the adjustment mechanism may well be through the failure of producers or productivity enhancement, etc.

Just a couple of points: The fed has nothing to do with the price indices. The consumer price index and the producer price index are generated by the Bureau of Labor Statistics, an agency of the Labor Department. The fed, or Federal Reserve Board, is an independent agency. The proportiona are determined by rather extensive surveys. It is true that the proportions are averages, and may not reflect the buying habits of any specific person. And, over time buying habits change but the proportions are readjusted only periodically. But, in general this means that the index may overstate the true welfare effects of the price changes as people tend, at least on average, to switch their person spending toward goods which have become bargains, and to economise by spending less on products which have become more expensive. All indices, by their very nature, must have some biases.

If you want more flexible proportions in a price index, some people prefer to use the Implicit Price Deflator for GDP. This has a difference set of index number biases. The Implicit Price Deflator is published by the Bureau of Economic Analysis, and agency of the Commerce Department.

My point exactly! Errr...I think...

Bruce

[Butch Edwards]

..some truley knowlegeable statements were made in this thread...lotsa good points made. all I know is, that Disposable Income per household has diminished greatly over the past 5 years...I say that in regards to what's happening all over,from rising energy costs... higher taxes...lower quarterly returns on investments...the whole 9 yds.
and with less DI, toys will be forgoed. personal debt is also another factor in this, and many are trying to control that,IOW= not whipping out the Card to buy stuff(including WW tools). regardless of where a product is manufactured, the DI has to be there for the item to be bought.
like someone stated earlier, things are going up...yep....faster than the salaries being earned.
example: in Sat. local paper, were the lists of delinquate taxes,both real and personal properties. the average taxe due on RE was about a grand +/- . many where MUCH more...2-3x more. and the list was 6 pages each, front and back. I'm thankful that I'm not one of 'em, but those folks will NOT be buying many "extras" in the near future.. they'd better try to save their property from auction(they have until July 1). I believe things will get better, but it won't be a quick as a recover as in the past, not nearly. it's a whole new ballgame America's economy's playing in now....more international players with growing economies to compete with.that's never been the case as I can remember.....

[Greg Cole]

Our ~4% inflation

Not including fuel, food and other basic necessities. The fabricated number for inflation is all but useless. Used to keep cost of living raises in the toilet.

I deal with all Euro manufacturers at the day job (ok, one Australian company too). In wake of the lenghty slide of the USD into the abyss, we have started either fabricating in the US for some of our suppliers. Their buying power here now is formidable, literally since the inception of the Euro, they are kicking our posterior. Trading all but on par with the AUD & CDN is bad enough, but the Euro is ridic.
I am having 40' containers of "stuff" (stuff= machined steel items for industrial food processing machinery) made here and shipped to Europe and it's still a HUGE benefit to said machine manufacturer. It's at least 25% cheaper for them per container of "stuff". Too bad as a nation in general we have NO ability to manufacture & export.

Greg

[Peter Quadarella]

Re: the 4% inflation comment - several of the posts above addressed this nicely.

Re: the comments about the USD and exporting - I don't follow that argument. The decreasing USD is a huge benefit to us when discussing exports. They make many of our manufactured goods much more attractive due to the relatively lower cost, and therefore we generate more sales. I don't understand where the problem is with more jobs being generated locally, more money coming in from other countries, and more customs fees being generated because of a lowered USD and more exports.

Doing anything in Europe has been more expensive for a while, mostly due to their higher taxes and stricter controls on employers, the USD just helps a little there. I wouldn't worry about Europe much though, look to the east for our real competitors.

[Chris Padilla]

America is the largest economy. But our economic inertia alone does not guarantee a perpetual dominance in the international market place.

Even the (mighty) Roman Empire eventuall collapsed....

Oh, and try BICYCLING!! Wonderful exercise, low emissions, and you'll feel like a kid again!

[Chris Padilla]

Our ~4% inflation doesn't really compare to truly bad years, like the double digits of the 70s. I'm sure people really thought the end was nigh back then.

Not that things are all rosy, but we must try to keep perspective. Sometimes this stuff can be self-fulfilling.

Do you really believe it is only 4% inflation? I think it is WAY understated:

http://finance.yahoo.com/tech-ticker/article/23878/Bill-Gross-Lies-Damn-Lies-and-Government-Inflation-Data?tickers=PTTAX,ING,%5ESPX,SPY,TLT

[Steve Schoene]

The approx 4% number includes food and fuel. Excluding these items places the inflation rate in the 2.x percent range.

[Peter Quadarella]

I just didn't want to rehash my thoughts, already posted at the top of page 3. I think the inflation numbers are difficult to pin down. Maybe they are not 4%, but where will you find a group of people to agree on which items count towards inflation?

How much disposable income one has is a big impact on how you view inflation currently. As I mentioned, for those who spent all their money on a big house in the last 5 years, and don't have much disposable income, the higher cost of food and gas makes up such a huge percentage of their money that the inflation rate seems higher.

For someone who has a relatively low mortgage rate, and pays for their gas with only a small fraction of their money, they have a lot of disposable income. This money can be spent getting deals at Costco by buying in bulk. Also, a lot of their money will be spent on non-essentials, such as electronics, clothes, furniture, etc. Over the last 10 years, comparable items similar to these have in many cases gone down drastically.

So, I think it depends largely on one's own point of view. As I mentioned, I agree that much of America is in the first category.

That's my take anyway. Steve provided an explanation of the whys around inflation calculation above, which also provides insight.

[Dave Stuve]

Our dollar has been overvalued for decades - we wanted it high because we got cheap goodies from overseas, and other countries wanted a strong dollar so they could outcompete our domestic labor. And Wall Street wanted it strong so they could invest overseas at very attractive prices.

In the 90s I kept expecting the dollar to fall, but the adage was "don't bet against the dollar", because every time currency traders started pushing the dollar down someone in the US gov't would mention they had a 'strong dollar policy' and/or the Bank of Japan (among others) would buy dollars hard and blow the traders out of the water.

I think the Bush administration wanted the dollar to fall to deflate the huge debts that they were racking up - it's a tempting strategy that can slash your debts. But it's a double-edged sword - oil which we're heavily dependent on increases in price when the dollar falls. Honestly I think their plan to deflect that problem was to just ask the Saudis to pump a bunch more to stabilize the price. They used to do that, but the Saudis said no twice recently, probably because of our meddling in their back yard.

Now we've got the double-whammy of overseas goods costing more, and fuel/shipping/overhead going up too. And I was going to buy a band saw and table saw next year. Sigh.

I just don't want to see a repeat of the 80s where cheap junk was put out to keep prices low. Tool quality seems really high right now....

Dave

[Brad Knight]

Well, here’s my take on it. (and I’m going to do my best to avoid any specific politics)

I personally believe in the American people, and the people here at the creek are probably some of the best examples of American people I’ve found. I have seen a never ending attempt by nearly every member that posts here to strive for excellence… and I appreciate that from everyone.

I think that we… as a people… could do so much better if the government, Democrat and Republican alike… would get out of our way. I think that we could compete with anyone in the world as a people, as individuals. I believe that there is a distinctly American spirit that allows people that are represented here (whether your from the United States of America or not, it’s the spirit that counts) that will push us to make things better, smarter, and more affordable, with a combination of capitalism and a moral fairness that will always put Americans in the forefront.

NOW… with that said… the government needs to get out of our way. Starting with this cap-n-trade deal that all three of the remaining presidential candidates support… it will raise the cost of fuel and energy and none of them are denying it. Then factor in the fact that (I believe) we are the only nation in the world that makes it illegal to go after our own natural resources… the only one. Russia is cutting taxes for their oil companies so that they can explore for more resources, while we are threatening to socialize our oil companies and forbidding them from exploring here. John McCain said he’d no more want to drill in ANWAR than he’d drill in the Grand Canyon. I’d drill in my back yard if it meant lower gas prices. (Disclaimer note: I personally work on drilling rigs so I wouldn’t mind seeing more drilling anywhere)

We do have more coal than Saudi has oil. We also have more total oil than Saudi between North Dakota, Colorado, ANWAR, Gulf of Mexico, Atlantic Shelf and Pacific Shelf. China is drilling… right now… 90 miles off of Florida’s coast when we can’t. (and it was George Bush who signed the moratorium blocking the drilling off of Florida)

One thing I read… about energy independence… there is no need to be 100% energy independent. It’s not that complicated and it’s not quite that ‘big’. All we have to do is to become serious about being energy producers. We have to prove that we’re willing to be ‘players’ in the market instead of simply consumers. We can do that. We can do that quickly. As soon as other oil producing nations realize that there will be more competition for their product… prices will drop. All it will take is to show that we’re serious. Which we’re no serious now.

Now, I hope I have avoided the trappings of politics enough. I just think that woodworkers should be free to work wood. Oil producers should produce oil… and I am all for alternative energy sources… but if they’re that great they should produce energy and compete with the other guys. Businesses should run businesses and politicians… well they should stay in Washington and debate and call each other names like they’ve done for hundreds of years and get out of our business.

(Sorry for the long preachy post)

[Chris Padilla]

Oil producers should produce oil… and I am all for alternative energy sources… but if they’re that great they should produce energy and compete with the other guys. Businesses should run businesses and politicians… well they should stay in Washington and debate and call each other names like they’ve done for hundreds of years and get out of our business.

(Sorry for the long preachy post)

I'm hoping $4 gas forces the alternative energy spark...forces Detroit to stop churning out 10 mpg vehicles...forces better energy use...forces us out of our cars a bit....

[Brad Knight]

Chris, I'm all for alternative energy and as an engineer I love some of the new innovative ideas, but should the government be the ones using the 'force' of law to force it??

I personally believe we should have the liberty to choose. I don’t think the government should rule over us as much as they should represent us.

And at the very least, they should be intellectually honest about it and come out and admit that they are working to drive the cost up instead of dragging business men up in front of congress and threatening to socialize the oil companies like they’ve done in Venezuela.

[Mike Henderson]

Now, I hope I have avoided the trappings of politics enough. I just think that woodworkers should be free to work wood. Oil producers should produce oil… and I am all for alternative energy sources… but if they’re that great they should produce energy and compete with the other guys. Businesses should run businesses and politicians… well they should stay in Washington and debate and call each other names like they’ve done for hundreds of years and get out of our business.

(Sorry for the long preachy post)

I'm not a big fan of government intervention but I do see the need for some of it.

Take environmental issues. Companies throughout history have ignored environmental issues, leaving a mess to be cleaned up by someone else. Shouldn't the company making the profit be responsible for the full cost of their enterprise? Why should they be able to take the money and run, while leaving others to live with or clean up their mess?

There's also value in having an unspoiled section of land. Would you really like to see development (such as oil rigs and storage facilities) in the Grand Canyon? Some land is enjoyed by the citizens of the country and they have the right to a say in whether it's going to be changed for the purpose of producing energy.

Finally, a big role of government is to produce a level playing field in the marketplace. Without a set of rules, companies will run small competitors out of business (like Standard Oil did prior to the laws). Once they eliminate the competition, they raise the price. And without competition, the companies themselves stagnate and become uncompetitive.

No, I want a certain amount of government regulation. It makes life better for all of us.

Mike

[Steve Schoene]

Nobody is going to sell tools (or anything else, for that matter) for less than the marginal cost of making them. Since the cost of cast iron, steel, copper, and transport are way up, that will be reflected in the cost of tools. Sometimes you lose less money by not selling anything than you do by selling more.

But remember that changing the schedule of marginal costs (the short term supply curve) only determines the direction of the change of price if at the same time there is no change in the demand for the product.Even though the supply curve (or marginal cost curve) is shifting left with the rise of the input prices you mention, if demand is also shifting left prices need not rise at all. It is strictly an empirical question as to which effect will dominate. But, since some of the more dramatic price increases in food and fuel are also greater necessities so that the income devoted to buying them goes up when the price rises (price inelastic demand). Since woodworking tools are likely both price and income elastic, it's easy for me to imagine demand falling because of the income effects and with price elastic demand as well, I can easily imagine large quantity decreases with only modest price changes.

Sorry, Dave used the term "marginal cost" and I'm afraid I was stimulated to a Pavlovian response.