Across the Curve has a post about pressure to lower prices… The culprit is the weakness of labor’s income to bolster prices. So now many companies are maneuvering to do whatever to cut prices. The last half of 2013 made this clear. Yet, some companies are not going to be successful at this game. These “cost-cutting challenged” companies are hiding in the woodwork… and they will progressively infect economic growth.
The effective demand limit is biting down on the economy. More so if wage cuts or restricted hiring are part of the aggregate package to cut costs. The seeds of a coming contraction are being sown.
quotes from the post…
“American companies are struggling with falling prices for a number of their key products, keeping a lid on revenue growth and hiring.”
“Corporate revenues are showing the strain, whether from lower prices, weak demand or a combination of the two.”
“Part of the problem is that weak revenue leads companies to cut prices to boost sales, which reduces the value of those sales, and trickles down through the supply chain.”
““When you have such weak top-line growth, such weak demand, the competitive environment becomes much tougher,” says Jason DeSena Trennert, chief investment strategist with Strategas Research Partners.”
This type of tight competitive environment for profits indicates the effective demand limit. When the economy is below the limit, profits can rise for most companies, but at the limit, profits get crowded out. Such that if one company gains profits, another company is losing profits. Price cutting is a reaction, especially when supply is so much more potent than demand.
I wonder how many economists under their breath are concerned about the unemployment rate.