By Jim Cline and Kate Kremer
This is the first of an 11 part series addressing current economic conditions and wage settlement trends. In this Summer 2015 Wage Series we’ll bring you an update on CPI and economic developments, wage settlements, interest arbitration trends, statewide wage rankings for public safety classifications across the State, and an in-depth analysis of what factors appear to be impacting those rankings and settlements.
We will provide you a good overview of those trends but for the most detailed and complete look at wage rankings and settlements, you’ll want to explore our Premium Website . We now have a video showing and explaining the Premium Website. If you’re not currently a Premium Website subscriber, you can review our services at Cline and Casillas Premium Information Services and contact Donna Steinmetz at Cline and Casillas and she’ll explain how you can become one. For current premium subscribers, below are links to some of the additional available CPI reports:
Seattle CPI-W and CPI-U 5 Year Report
Seattle & All Cities CPI-W 2 Year Report
Seattle & All Cities CPI-W 3 Year Report
We start with the April 2015 CPI numbers. The All Cities as well as the local indexes have been trending downward since October 2014, but in the past few months the inflation rate has been falling dramatically. For over a year, since February 2014, the Seattle CPI-W has been above the All Cities CPI-W index. However, this higher standing was moot in April as both indexes fell below zero percent increase with All Cities CPI-W at -0.80% and Seattle CPI-W at -0.20%. This is concerning for contracts utilizing a CPI based wage increase formula with the highly utilized June numbers still to come. We will analyze these as they come out in mid July.
We are not anticipating that these numbers will leap up anywhere near the 2% mark. The May All-Cities numbers just released do show some turnaround on inflation jumping up .4% in a single month. (The Seattle index is only reported on a bi-monthly basis.)
Here’s a graph showing other CPI indices commonly used for Washington public safety labor contract negotiations:
Economists 2013 and early 2014 predictions for inflation near 2% over the next few years have proven inaccurate. The All Cities figures fell below 2% in mid-2014 and by December 2014 the Seattle index followed suit. As presented in our blog, gas and fuel prices took a big drop in 2014 and that exerted downward pressure on the CPI. Expectations are for continued low gas prices without further decreases well into 2016. The Washington State Economic and Revenue Forecast for February 2015 includes CPI-U annual 2015 projections of 0% for All Cities and 1.2% as the Seattle figure. However predictions for 2016-2019 have figures over 2% ongoing. http://www.erfc.wa.gov/publications/documents/feb15pub.pdf (page 108).
Our office has committed the resources to not merely collect labor contracts, but to input data from those contracts into a database. This puts us in the unique position to analyze that data over time. Our review of the Police Officer and Deputy Sheriff labor agreements shows that while 32% of contracts included a CPI-based formula for wage increases in 2009, this percentage has dropped to 22% in 2013 and 2014. An increasing number of labor contracts have exchanged the recently volatile CPI figures for a flat percentage increase. For further information regarding this trend see our recent blog.
As you assess your potential 2016, 2017, and even 2018 wage offers you’ll want to factor in both the CPI predicted trends as well as the move of increasing numbers of public sector wage increases away from CPI based formulas. Moving forward, despite the otherwise positive economic and labor market conditions, the recent trends of increases north of 2% may turn into a trend settlement south of 2%. What happens to CPI in June and in the months that follow will certainly have some impact on 2016 settlements. In the next article in this series we will discuss current settlement trends and later in this we’ll discuss these trends and other factors and what they mean for your contract negotiations outlook.
