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  • Writer's pictureJill Schlesinger, CFP

Jill on Money


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UAW steps up, Fed stands down


Two notable events collided to paint a picture of the U.S. economy that remains in a post-pandemic transition: the UAW launched “targeted strikes” against GM, Ford and Stellantis, just days before the Federal Reserve convened a two-day policy meeting.


In both instances, there are many questions that cloud decision-making for those involved.


The now-expired 2019 UAW contract occurred at a time when the U.S. economy, as measured by GDP, grew by 2.3 percent and inflation clocked in at the same pace.


The 14 years leading up to the 2019 contract were highlighted by “volatility and disruption,” according to Ford. The Great Recession had taken a big bite out of the industry, with GM and Chrysler (now Stellantis) declaring bankruptcy and all three of the U.S. giants receiving a massive bailout from the government.


The Big 3 took a while to get back on track, but by 2015, “the industry had fully recovered and achieved a new record of annual sales.” Still, the shadow of the Great Recession loomed large when the 2015 and the 2019 contracts were signed.


Neither side could have imagined what the subsequent four years would do to the world.

COVID-19 upended our lives and shook up the global economy in ways that were at times horrible and then for the auto industry, better than imagined. The Big 3 pocketed huge profits, as union members were forced to grapple with pay that was unable to keep pace with inflation.


As new contract negotiations began this year, both sides understood that pay would have to rise substantially, at least by the 20% increase in the Consumer Price Index since 2019.


But what is the right amount if the Fed is fighting to push down inflation? Should union members be buoyed by the strength of the overall labor market, or should they be concerned that job growth is moderating? From the perspective of the automakers, how should they factor in the union desire for a shorter workweek, when technology is upending the assessment of their labor force needs?


The Federal Reserve finds itself asking similar questions about the future. Chief among those queries: Is the 22-year high in the Fed Funds rate (5.25 to 5.5%) enough to put the post-COVID inflation spike to rest?


The answer for the September meeting was unclear, which is why the central bank decided to stand down on any further rate increases. In fact, one big factor contributing to the pause was the moderation of the labor market.


Economists say that the combination of a deceleration of job growth, along with voluntary job quits returning to pre-pandemic levels, means that wage growth should start to ease.


I know what you are thinking: Wait — why is it good news that wages are slowing down?


As employees earn more, they are able to spend money more readily, which can keep prices high. Conversely, as workers’ pay moderates, prices should weaken.


The key to worker satisfaction is for wages to rise by enough to outstrip price increases, which is why the government looks to a metric called “real median household income,” the inflation-adjusted amount of money the median household earns annually.


According to a recently released Census Bureau annual scorecard, even though people earned a lot of money in 2022, inflation took its toll. Real median household income decreased by 2.3% from the 2021.


The hope among Fed officials is that 2023 is the year that inflation slows down more than wage growth, in which case, Fed officials may not think that they need to raise interest rates further…and the UAW and the Big 3 can come to a deal that satisfies both sides.


(Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at www.jillonmoney.com) ©2023 Tribune Content Agency, LLC

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