By Jim Cline and Kate Kremer
This is the third article in our wage series reporting on contract settlement trends. This article highlights some of the recent economic developments most likely to impact your negotiations outlook. As always, the most important variable for your contract is your local economy and your employer’s fiscal condition but the larger state and national trends have an immediate bearing on those and are worth an examination.
The November 2023 “Economic and Revenue Update” from the Washington State Economic and Revenue Forecast Council (WSERFC) describes a mixed Washington State economy:
- The Washington economy continued to expand through the third quarter of 2023.
- Washington employment growth in September and October was more than expected in the September forecast.
- The Washington unemployment rate rose to 3.8%, the first increase since June.
- Washington housing construction slowed in the third quarter of 2023.
- Seattle home prices increased in August for a fifth consecutive month.
- Washington exports decreased 0.8% from the third quarter of 2022 to the third quarter of 2023.
- Seattle consumer price inflation outpaced the national average in the year ending in October 2023.
Kiplinger’s November 2023 forecast indicates “sticky” inflation. Core inflation, which excludes food and energy costs rose 0.3% in November. However, the Fed stated at a press conference following its Wednesday December 13, 2023 meeting that inflation has decreased more than anticipated and that they anticipate some interest rate cuts in 2024. That is good news for the US economy. These developments seem to be reflected in the recent run-up of the stock market.
The previous predictions of a likely recession appear not to be materializing. the Wall Street Journal October 2023 forecasting survey in which economists reduced their prediction of a recession to below 50%. Economists are more optimistic about the US economy: “Fueling the optimism are three key factors: inflation continuing to decline, a Federal Reserve that is done raising interest rates, and a robust labor market and economic growth that have outperformed expectations.” A Recession Is No Longer the Consensus, Torry and DeBarros, Oct 15, 2023, WSJ.
We had been noting in our recent Webcasts that a majority of economists had an outlook that included a recession. But we had also called out in those discussions that the projections called for a shallow recession in which relatively full employment was maintained. Provided no recession materializes, it’s likely that the labor market will continue to be very tight.
Late 2023 reports from other sources indicate signs the U.S. economy is slowing but unemployment has proven resilient and remains low:
- Manufacturing PMI (Purchasing Managers’ Index): November 2023 showed a slowdown in Manufacturing numbers showing lower growth forecasts for 2024. http://www.tradingeconomics.com/united-states/manufacturing-pmi
- The Bureau of Labor Statistics unemployment rate fell to 3.7% percent in November 2023 from 3.9% in October. The unemployment rate remains low by historical standards and has ranged between 3.4% and 3.9% during 2023. http://www.bls.gov/news.release/pdf/empsit.pdf
Some economists expect unemployment to grow to just over 4% in 2024. https://www.kiplinger.com/economic-forecasts/jobs - The most recent Gallup poll indicates that Americans perception of the U.S. Economy improved in November 2023 from a low in July.
- Retail Sales for October were down 0.1% from September – A sign that consumer confidence is slowing. https://tradingeconomics.com/united-states/retail-sales
- Retail growth is expected to slow. https://fortress.wa.gov/esd/employmentdata/docs/economic-reports/current-monthly-employment-report
All these economic conditions and predictions become part of the background that impacts your labor negotiations. A strong economy typically leads to strong local government revenues. A tight labor marketplaces pressure on wages. The combination of strong revenues and a tight and labor market pressures suggests solid settlement trends in the immediate term.
