Archives for March 2025

By Jim Cline

In Monday’s newsletter, we reported on the last All-Cities and Seattle CPI from February. That report showed that the Seattle indices, which had been running a percentage point or two over the All-Cities number are now coinciding with the All-Cities numbers and actually a fraction of a percent lower. This raises a recurring question on the differences between these indices and the pros and cons of each.

Read more: Why are the “Seattle” indices important and What’s up with them?

First, there needs to be an understating of the scope of where these numbers come from. The Seattle indices (“U” and “W”) do not cover simply costs within the City of Seattle but cover use sampling from all of King, Snohomish, and Pierce counties. BLS used to include adjacent urban Counties in the Seattle CMSA region like Kitsap and Thurston but eventually narrowed the geographic scope of this index.

Still, because those adjacent areas likely have their cost of living impacted more by Seattle Metro trends than national trends, it is common to use the Seatle numbers in negotiating contracts throughout Western Washington and even sometimes in Eastern Washington. Housing prices and other components of the cost of living throughout the State are much more likely to be influenced by what’s happening in the Seattle area than what is occurring in the Midwest or East Coast. And when you are using comparables that are located inside the Seattle Metro area, it’s likely that you are looking at the trends and expected trends for those contracts with a goal of keeping pace with those trends.

We have written on many occasions that there’s been a long term tendency of the Seattle indices to outpace the national indices. What’s been noteworthy recently is how much that has occurred. Two years ago, the All-Cities CPI was 2.3% while the Seattle number was 4.5%. While it is not uncommon for the Seattle numbers to outpace the national numbers by a fraction of a percent, that 2.3-point difference is remarkable and, as we expected, not likely to be long sustained. By last June the gap (had closed to a percentage (4.3% versus 3.3%).

Since that time the Seattle indices have continued to subside. As we explained in December, the large gap that had existed between the Seattle and national numbers is closing. And this month, as indicated above, the Seattle numbers are slightly lower. And as our report on the February numbers show, the gap has now disappeared.

That doesn’t mean that the Seattle indices, at least over time, won’t ride a slight amount above the national numbers. As long as the Seattle regional economy continues to perform strong the related inflation pressures, especially on housing costs, will continue. We have said repeatedly that if you were to tie your contract to a particular index, the Seattle index is a better bet in the long run than the All Cities, and we continue to make that recommendation for now.

By Jim Cline

In our last newsletter, we discussed the February CPI Report. In this article we discuss other economic developments, including state and local revenue forecasts.

Read more: Economic Factors Developments Complicate Bargaining Picture

Other than a slight rebound in past week, most of the recent economic news has not been good. The University of Michigan consumer sentiment survey also showed a dramatic drop in consumer confidence. The tariff wars concern economists and the broader stock market. The drop in consumer confidence is likely to impact consumer spending.

Last week Federal Reserve Chair Powell expressed a concern that tariffs could impact inflation and he was anticipating at least somewhat higher inflation in 2025. Those Fed projections will result in at least some delay in any interest rate reductions which will inhibit economic growth. Increasingly economists, including the Fed, are expressing some concern of the possibility of “stagflation” — the combination of inflation and a slower economy.

Over the past week the stock market has stabilized indicating that at least investors think that a recession may be avoided. But a number of economists have increased their projections on a possible 2025 recession from remote to much more possible.

A drop in consumer spending will have a potentially significant impact on Washington local government revenues. Statewide sales tax revenues for 2024 were flat relative to 2023, and 2023 revenues were up only modestly compared to 2022. On the other hand, those same revenues rose dramatically since 2018 and until recently cities and counties were in a seemingly strong fiscal position. The Cline and Associates premium website contains details sales tax revenue data, including breakouts by city and county.

Just last week the State released an updated revenue report that shows revenues lower than had previously been projected, largely because of the plateauing of sales tax revenues. The flat revenue picture has already impacted the State budget with State budget cuts anticipated. Damage from state budget cuts is ordinarily not limited only to state agencies. In many direct and indirect ways, local governments benefit from a strong state budget.

There are numerous Washington cities and counties that had already predicted possible budget cuts for 2026 and beyond budgets. Pending and uncertain are the request by cities and counties to raise the property tax levy restrictions and other revenue to allow more local government taxing capacity. The outcome of those efforts may not be clear until later in the spring.

By Jim Cline

The Bureau of Labor Statistics released their bimonthly inflation report March 12 showing inflation through February. Most economists had projected that All Cities CPI would be around the 3.0% mark reported in the January inflation report but instead a slight dip was reported. Another notable trend is that, as we have been anticipating, the Seattle indices have continued to slow, and Seattle area inflation is reported as slightly less than national numbers.   

Read more: February CPI Release Reports Slight Easing of Inflation — For Now

This graph shows the bimonthly movement in inflation over the past year, including the latest numbers:

The numbers above drive many contract negotiations, but they are not the only numbers in use. This chart shows some of the other often used indices including the “U” numbers and the West Coast numbers:

Absent a significant economic slowdown or recession (discussed below), many economists anticipate that upcoming inflation reports will be higher, probably north of 3%. While inflation had been expected to continue its trajectory towards the Fed’s 2% inflation target, the surging tariff wars and expected to create some bump in inflation. Almost all economists agree that increased tariffs will create an increase in inflation, but they differ as to the extent and how long lasting the inflation impacts will be. This morning’s CPI report may represent the low point in inflation for the year.

Last week’s University of Michigan consumer sentiment survey also showed consumers anticipating more inflation ahead. Inflation expectations are problematic because they influence the direction of inflation. Economists believe expectations of higher inflation spur wage demands which create higher levels of inflation.

In the next newsletter article, we’ll address other economic developments impacting bargaining.