By Jim Cline
Most of our recent blogs on economic developments have emphasized the modest nature of recent economic improvement, but a series of reports over the past few weeks have signaled that the economy may, at last, be gathering a bit of momentum as it heads into 2014. While the government shutdown and debt ceiling debate seemed to place a chill on the economy this fall, these new economic releases have often exceeded economists’ expectations and point to a possible improved economy in the year ahead.
Since the outset of the 2008 “Great Recession,” government budgets have been constrained and this has made collective bargaining markedly more difficult. We’ve characterized much of the 2013 economic news as “tepid” and “mixed”.
While the aftermath of the October government shutdown included a number of reports indicating some reduction in economic growth, the reports over the past few weeks have been brighter and almost uniformly positive about the national economy:
- A drop in the national unemployment rate to 7.0%
- A better than expected increase in the 3rd Quarter Gross Domestic Product
- A 21% increase in home sales
- An increase in construction spending
- An increase in retail sales
This is not to suggest that the economy is “booming,” or even close to that. The data still shows, at best, fairly moderate growth. But, the good news is, the near uniformity in positive reports possibly signals an acceleration of the recovery. Over the past few years, the developments seemed to be characterized as “two steps forward and one step back” as every time the economy would seem to be getting stronger, it would hit a setback.
These more positive developments don’t suggest that bargaining going into 2014 will be easy, but perhaps it will be less difficult. As we have previously discussed, “some cities and counties are still digging themselves out of a fiscal hold created by depleted reserves.” While in many instances, jurisdictions have returned to adequate fund levels, the most recent experience with the Great Recession is bound to make many local governments reluctant to overextend themselves by improving labor contracts.
Perception is reality. To the extent local governments are anxious about near term developments, they will take a harder approach to bargaining and that factor in itself will restrain settlement trends. That factor, combined with the recent fall off in CPI suggest 2014 wage settlements are unlikely to accelerate above current levels or even reach them. On the other hand, with the overall improvement in labor market conditions, we are expecting that, over time, pressure will grow on some employers to improve compensation to develop a better recruitment/retention posture. To the extent the economy continues to gather momentum, the bargaining climate will improve.
