Labor Market

特別レポート

Highlights Public opinion has a significant impact on labor-management outcomes: Organized labor cannot make any headway unless elected officials and the courts give it a fighting chance. They will only do so if the public desires it. The face of organized labor is changing: Manufacturing’s decline does not ensure the demise of organized labor. Unions have already pivoted to services, just like the overall economy. Elections have consequences: The power to pass legislation, staff departments and agencies, and exert control over judicial appointments can have a tremendous workplace impact. Organized labor isn’t dead: We do not expect a return to unions’ heyday, but we are convinced that labor’s potential to achieve significant incremental progress is much larger than most investors believe. The election could serve as a catalyst for tapping that potential. Feature We have read quite a bit about US labor relations over the last month and a half. Several themes were apparent, but the most basic was a constant from the 1800s to today: For-profit employers will seek the most favorable terms they can get, to the extent that they are socially acceptable. This is not to say that management is out to get labor, or that Marx might have had a point; it simply acknowledges the pre-New Deal and post-Reagan empirical record. Before the legal and social buffers that sheltered labor were put in place, and after they began to be eroded, employees found themselves steadily losing ground. Capturing Hearts And Minds Public opinion has shaped the outcomes of labor-management contests throughout US labor relations history. Labor was continually outgunned before the New Deal, coming up against private security forces, local police and/or the National Guard when they struck. Employers were able to turn to hired muscle, or request the deployment of public resources on their behalf, because the public had few qualms about using force to break strikes. College athletes were even pressed into service as strikebreakers after the turn of the century for what was viewed at the time as good, clean fun.1 Public opinion is not immutable, however, and by the time of the Flint sit-down strike, it had begun to shift in the direction of labor. The widespread misery of the Depression went a long way to overcoming Americans’ deep-seated suspicion of the labor movement and the fringe elements associated with it. Some employers were slow to pick up on the change in the public mood, however, and Ford’s security force thuggishly beat Walter Reuther and other UAW organizers while they oversaw the distribution of union leaflets outside a massive Ford plant just three months after Flint. Ford won the Battle of the Overpass, but its heavy-handed, retrograde tactics helped cost it the war. Reuther, who later led the UAW in its ‘50s and ‘60s golden age, was a master strategist with a knack for public relations. Writing the playbook later used to great effect by civil rights leaders, Reuther invited clergymen, Senate staffers and the press to accompany the largely female team of leafleteers. When the Ford heavies commenced beating the men, and roughly scattering the women, photographers were on hand to document it all.2 The photos helped unions capture public sympathy, just as televised images of dogs and fire hoses would later help secure passage of landmark civil rights legislation. Unions’ Fall From Grace Labor unions enjoyed their greatest public support in the mid-fifties, and largely maintained it well into the sixties (Chart 1), until rampant corruption and ties to organized crime undermined their public appeal. The shoddy quality of American autos further turned opinion against the UAW, the nation’s most prominent union, and a college football star named Brian Bosworth caused a mid-eighties furor by claiming that he had deliberately sought to prank new car buyers during his summer job on a Chevrolet assembly line. Bosworth later retracted the claim that GM workers had shown him how to insert stray bolts in inaccessible parts of car bodies to create a maddening mystery rattling, but the fact that so many Sports Illustrated readers found it credible eloquently testified to the UAW’s image problem. Chart 1Unions' Public Image Has Recovered Nicely Since The Crisis Figure 1Unions' 1980s Public Opinion Vortex President Reagan accelerated the trend when he successfully stood up to the striking air traffic controllers, but his administration could not have taken such a hard line if unions hadn’t already been weakened by declining public support. In the final analysis, it was PATCO’s disastrous misreading of public opinion – fed-up voters supported the White House, and other air travel unions refused to strike in sympathy with the controllers – that led it to spurn the administration’s generous initial offer and brought about its demise. Together, the public’s waning support for unions and the Reagan administration’s antipathy for them were powerfully self-reinforcing, and they fueled a vicious circle that powered four decades of union reversals (Figure 1). Companies will do whatever they perceive to be socially acceptable in conflicts with employees, but no more. As a prescient November 1981 Fortune report put it, “‘Managers are discovering that strikes can be broken, … and that strike-breaking (assuming it to be legal and nonviolent) doesn’t have to be a dirty word. In the long run, this new perception by business could turn out to be big news.’”3 Emboldened by the federal government’s replacement of the controllers, and the growing public perception that unions had devolved into an insular interest group driving the cost of living higher for everyone else, businesses began turning to permanent replacement workers to counter strikes.4 As an attorney that represented management in labor disputes told The New York Times in 1986, “If the President of the United States can replace [strikers], this must be socially acceptable, politically acceptable, and we can do it, also.”5 Labor’s New Face … Polling data indicate that unions have been recovering in the court of public opinion since the crisis, when the public presumably soured on them over the perception that the UAW was selfishly impeding the auto industry bailout. Their image got a boost in 2018 (Chart 2), as striking red-state teachers embodied the shift from unions’ factory past to their service-provider present. “The teachers, many of them women, are redefining attitudes about organized labor, replacing negative stereotypes of overpaid and underperforming blue-collar workers with a more sympathetic face: overworked and underappreciated nurturers who say they’re fighting for their students as much as they’re fighting for themselves.”6 Chart 2Feeling The Bern? Several commentators have heard organized labor’s death knell in US manufacturing’s irreversible decline. Unions gained critical mass on docks, factory floors, steel mills and coal mines, but few of today’s workers make their living there. Those who remain have little recourse other than to accept whatever terms management offers, as their jobs can easily be outsourced to lower-cost jurisdictions. The decline in private-sector union membership has traced the steady diminution of factory workers’ leverage (Chart 3). Chart 3Tracking Manufacturing's Slide Service workers represent unions’ future, and they have two important advantages over their manufacturing counterparts: many of their functions cannot be offshored, and a great deal of them are customer-facing. When MGM’s chairman was ousted from his job after clashing with Las Vegas’ potent UNITE-HERE local over the new MGM Grand Hotel’s nonunion policy, his successor explained why he immediately came to terms with the union. “‘The last thing you want is for people who are coming to enjoy themselves to see pickets and unhappy workers blocking driveways. … When you’re in the service business, the first contact our guests have is with the guest-room attendants or the food and beverage servers, and if that person’s [sic] unhappy, that comes across to the guests very quickly.’”7 … Management’s New Leaf … The Business Roundtable’s latest statement on corporate governance principles laid out a new stakeholder vision, displacing the Milton Friedman view that corporations are solely responsible for maximizing shareholder wealth. The statement itself is pretty bland, but the preamble in the press release accompanying it sounds as if it had been developed with labor advocates’ help (Box 1). It is a stretch to think that the ideals in the Roundtable’s communications will take precedence over investment returns, but they may signal that management fears the labor-management rubber band has been stretched too far.8 Box 1 Farewell, Milton Friedman America’s economic model, which is based on freedom, liberty and other enduring principles of our democracy, has raised standards of living for generations, while promoting competition, consumer choice and innovation. America’s businesses have been a critical engine to its success. Yet we know that many Americans are struggling. Too often hard work is not rewarded, and not enough is being done for workers to adjust to the rapid pace of change in the economy. If companies fail to recognize that the success of our system is dependent on inclusive long-term growth, many will raise legitimate questions about the role of large employers in our society. With these concerns in mind, Business Roundtable is modernizing its principles on the role of a corporation. Since 1978, Business Roundtable has periodically issued Principles of Corporate Governance that include language on the purpose of a corporation. Each version of that document issued since 1997 has stated that corporations exist principally to serve their shareholders. It has become clear that this language on corporate purpose does not accurately describe the ways in which we and our fellow CEOs endeavor every day to create value for all our stakeholders, whose long-term interests are inseparable. We therefore provide the following Statement on the Purpose of a Corporation, which supersedes previous Business Roundtable statements and more accurately reflects our commitment to a free market economy that serves all Americans. This statement represents only one element of Business Roundtable’s work to ensure more inclusive prosperity, and we are continuing to challenge ourselves to do more. Just as we are committed to doing our part as corporate CEOs, we call on others to do their part as well. In particular, we urge leading investors to support companies that build long-term value by investing in their employees and communities. The Environmental, Social and Governance (ESG) movement has the potential to improve rank-and-file workers’ wages and working conditions. ESG proponents have steadily groused about outsized executive pay packages, but if asset owners and institutional investors were to begin pushing for higher entry-level pay to narrow the income-inequality gap, unions could gain some powerful allies. … And The Public’s Left Turn Chart 4Help! As our Geopolitical Strategy colleagues have argued since the 2016 primaries, the median voter in the US has been moving to the left as the financial crisis, the hollowing out of the middle class and the widening wealth gap have dimmed the luster of Reagan-Thatcher free-market policies.9 Globalization has squeezed unskilled labor everywhere in the developed world, and white-collar workers are starting to look over their shoulders at artificial intelligence programs that may render them obsolete as surely as voice mail and word processing decimated secretaries and typists. Banding together hasn’t sounded so good since the Depression, and nearly half of all workers polled in 2017 said they would join a union if they could (Chart 4). Millennials are poised to become the single biggest voting bloc in the country. They were born between 1981 and 1996, and their lives have spanned two equity market crashes, the September 11th attacks, and the financial crisis, instilling them with a keen awareness of the way that remote events can upend the best-laid plans. Many of them emerged from college with sizable debt and dim earnings prospects. They would welcome more government involvement in the economy, and their enthusiastic embrace of Bernie Sanders and Elizabeth Warren (Chart 5) indicates they’re on unions’ side. Chart 5No "Third Way" For Millennials Elections Have (Considerable Regulatory) Consequences Electoral outcomes influence the division of the economic pie between employers and employees. Labor-friendly presidents, governors and legislatures are more likely to expand employee protections, while more vigilantly enforcing the employment laws and regulations that are already on the books. The White House appoints top leadership at the Labor Department, the National Labor Review Board (NLRB), and the Occupational Safety and Health Administration (OSHA), along with the attorney general, who dictates the effort devoted to anti-trust enforcement. It's no surprise that unions have started to look pretty good to workers after a decade of sluggish growth and widening inequality. The differences can be stark. Justice Scalia’s son would no more have led the Obama Department of Labor than Scott Pruitt (EPA), Wilbur Ross (Commerce) or Betsy Devos (Education) would have found employment anywhere in the Obama administration. McDonald’s has good reason to be happy with the outcome of the 2016 election; its business before the NLRB wound up being resolved much more favorably in 2019 than it would have been when it began in 2014 (Box 2). At the state level, Wisconsin public employees suffered a previously unimaginable setback when Scott Walker won the 2010 gubernatorial election, along with sizable legislative majorities (Box 3). Box 2 The Right Referee Makes All The Difference The Fight for $15 movement that began in 2012 aimed to nearly double the median fast-food worker’s wages. A raise of that magnitude would pose an existential threat to fast-food’s business model, and McDonald’s and its franchisees sought to stymie the movement’s momentum. The NLRB opened an investigation in 2014 following allegations that employees were fired for participating in organizing activities. McDonald’s vigorously contested the case in an effort to avoid the joint-employer designation that would open the door for franchise employees to bargain collectively with the parent company. (Absent a joint-employer ruling, a union would have to organize the McDonald’s work force one franchise at a time.) When the case was decided in McDonald’s favor in December, the headline and sub-header on the Bloomberg story reporting the outcome crystallized our elections-matter thesis: McDonald’s Gets Win Under Trump That Proved Elusive With Obama Board led by Trump appointees overrules judge in case that threatened business model Box 3 Wisconsin Guts Public-Sector Unions Soon after Wisconsin Governor Scott Walker took office in January 2011, backed by sizable Republican majorities in both houses of the legislature, he sent a bill to legislators that would cripple the state’s public-sector unions. Protestors swarmed Madison and filled the capitol building every day for a month to contest the bill, and Democratic legislators fled the state to forestall a vote, but it eventually passed nonetheless. The bill struck at a rare union success story; nearly one-third of public-sector employees are union members and that ratio has remained fairly steady over the last 40 years (Chart 6). Wisconsin’s public-sector unions now do little more than advocate for their members in disciplinary and grievance proceedings, and overall union membership in the state has fallen by a whopping 43% since the end of 2009. Chart 6Public-Sector Union Membership Has Held Up Well Judicial appointments make a difference, too. The Supreme Court’s Janus decision in April 2018, banning any requirement that public employees pay dues to the unions that bargain for them on not-so-readily-apparent First Amendment grounds,10 was widely viewed as a body blow to public-sector unions. The 5-4 decision would certainly have gone the other way had President Obama’s nominee to succeed the late Justice Scalia been confirmed by the Senate. Final Takeaways Six weeks of reading about US labor history, considering the game theory underlying employment negotiations, and examining the current landscape for insight into the drivers of management and labor leverage have left us pretty much where we started. We do not anticipate that organized labor will regain the position it enjoyed in the fifties and sixties, when global competition was weak and shareholders and consumers were anything but vigilant about corporate operations. Even a more modest flexing of labor muscle that pushes wages higher across the entire economy has a probability of less than one half. Investors seem to think the probability is negligible, though, and therein lies an opportunity. We stated two major themes at the outset. One, employees have little chance of gaining ground if government is disposed to side with employers, and, two, successful strikes beget strikes. Public opinion is the tissue that connects the two themes. Elected officials deliver what their constituents want, as do the courts, albeit with a longer lag. Society’s view of striking/strikebreaking tactics heavily influences how they’re deployed and whether or not they’ll be successful. If the electorate has had enough of Reagan-Thatcher policies, elected officials will stop implementing them. We believe that public opinion is beginning to coalesce on employees’ side as labor puts on a more appealing face; as businesses increasingly fret about inequality’s consequences; and as millennials swoon over progressives, undeterred by labels that would have left their Cold War ancestors reaching for weapons. The median voter theory has importance beyond predicting future outcomes; it directly influences them. As the center of the electorate leans to the left, elected officials will have to deliver more liberal outcomes if they want to keep their jobs. If the electorate has given up on Reagan-Thatcher principles, organized labor is bound to get a break from the four-decade onslaught that has left it shrunken and feeble. There is one overriding market takeaway from our view that a labor recovery is more likely than investors realize: long-run inflation expectations are way too low. Although we do not expect wage growth to rise enough this year to give rise to sustainable upward inflation pressures that force the Fed to come off of the sidelines, we do think investors are overly complacent about inflation. We continue to advocate for below-benchmark duration positioning over a cyclical timeframe and for owning TIPS in place of longer-maturity Treasury bonds over all timeframes. Watch the election, as it may reveal that labor’s demise has been greatly exaggerated.   Doug Peta, CFA Chief US Investment Strategist dougp@bcaresearch.com Footnotes 1 Students were excused from classes and exams and sometimes even received academic credit for their work. 2 King, Gilbert, “How The Ford Motor Company Won a Battle and Lost Ground,” Smithsonian.com, April 30, 2013. 3 Greenhouse, Steven, Beaten Down, Worked Up, Alfred A. Knopf: New York (2019), pp. 137-8. 4 High unemployment, in addition to declining respect for unions, helped erase the stigma of crossing picket lines. 5 Serrin, William, “Industries, in Shift, Aren’t Letting Strikes Stop Them,” New York Times, September 30, 1986, p. A18. 6 Emma, Caitlin, “Teachers Are Going on Strike in Trump’s America,” Politico, April 12, 2018. 7 Greenhouse, p. 44. 8 Please see the January 20, 2020 US Investment Strategy Special Report, “Labor Strikes Back, Part 2: Where Strikes Come From And Who Wins Them,” available at usis.bcaresearch.com. 9 Please see the June 8, 2016 Geopolitical Strategy Monthly Report, “Introducing The Median Voter Theory,” available at gps.bcaresearch.com. 10 The Court found for the plaintiff in Janus, who bridled at the closed-shop law that forced him to join the union that bargained on his and his colleagues’ behalf, because the union’s espousal of views with which he disagreed constituted a violation of his free-speech rights as guaranteed by the First Amendment. Bibliography Aamidor, Abe and Evanoff, Ted. At The Crossroads: Middle America and the Battle to Save the Car Industry. Toronto: ECW Press (2010). Allegretto, S.A.; Doussard, M.; Graham-Squire, D.; Jacobs, K.; Thompson, D.; and Thompson, J. Fast Food, Poverty Wages: The Public Cost of Low-Wage Jobs in the Fast-Food Industry. Berkeley, CA. UC-Berkeley Center for Labor Research and Education, October 2013. Bernstein, Irving. The Lean Years: A History of the American Worker, 1920-1933. Boston: Houghton Mifflin (1960). Blanc, Eric. Red State Revolt: The Teachers’ Strike Wave and Working-Class Politics. Brooklyn, NY: Verso (2019). Emma, Caitlin. “Teachers Are Going on Strike in Trump’s America.” Politico, April 12, 2018, accessed January 20, 2020. Finnegan, William. “Dignity: Fast-Food Workers and a New Form of Labor Activism.” The New Yorker, September 15, 2014 Greenhouse, Steven. Beaten Down, Worked Up: The Past, Present and Future of American Labor. New York: Alfred A. Knopf (2019). Greenhouse, Steven. “The Return of the Strike.” The American Prospect, Winter 2019 Ingrassia, Paul. Crash Course: The American Auto Industry’s Road from Glory to Disaster. New York: Random House (2010). King, Gilbert. “How the Ford Motor Company Won a Battle and Lost Ground.” smithsonianmag.com, April 30, 2013, accessed January 24, 2020. Loomis, Erik. A History of America in Ten Strikes. New York: The New Press (2018). Manchester, William. The Glory and the Dream: A Narrative History of America, 1932-1972. New York: Bantam (1974). Norwood, Stephen H. “The Student As Strikebreaker: College Youth and the Crisis of Masculinity in the Early Twentieth Century. Journal of Social History Winter 1994: pp. 331-49. Sears, Stephen W. “Shut the Goddam Plant!” American Heritage Volume 33, Issue 3 (April/May 1982) Serrin, William. “Industries, in Shift, Aren’t Letting Strikes Stop Them.” The New York Times, September 30, 1986 Wolff, Leon. “Battle at Homestead.” American Heritage Volume 16, Issue 3 (April 1965) *Current newspaper and Bloomberg articles omitted.

ハイライト 世界の成長は今年加速する態勢にあるが、コロナウイルスの感染拡大が短期的に支出を抑制する可能性がある。 歴史的に見て、失業率が非常に低い水準に低下したときに景気後退の確率が高まることが示唆されている。 この相関を説明するために3つの経路が提案されている：1) 失業率の低下により家計や企業が過度に拡張して経済が脆弱になること、2) 逼迫した労働市場に起因する賃金上昇が利益率を圧迫し、設備投資や採用を抑制すること、3) 潜在余力の縮小がインフレを促し中央銀行が利上げを迫られること。 第1の経路は、住宅バブルが形成され家計債務が非常に高水準に達している一部の小規模な先進国経済にとって非常に関連性が高い。しかし、米国、日本、およびユーロ圏の大半では差し迫った懸念ではない。 第2の経路の重要性は過小評価したい。というのも、賃金の加速は総需要を押し上げる可能性が高く、企業が省力化技術への設備投資を増やすインセンティブにもなるからである。 第3の経路が長期的には最大のリスクをもたらすが、今年の市場にとって直ちに重大となる可能性は低い。 投資家は今後12〜18か月間はグローバル株式に対して強気を維持すべきである。より慎重な姿勢は2021年後半から必要になるだろう。 グローバル株式：強気を維持 グローバル株式は8月の安値以降16％上昇しており、短期的な調整に脆弱である。しかし、年間を通じて世界の成長が勢いを増すと予想しているため、今後12か月の株式に対する見方は引き続きポジティブである。 最新の世界の製造業活動に関するデータは概ね当社の建設的な仮説を支持している。ニューヨーク連銀の製造業PMIは予想を上回り、フィラデルフィア連銀のPMIは約15ポイント跳ね上がり8か月ぶりの高水準となった。フィラデルフィア連銀指数の6か月先の企業見通し（ビジネスアウトルック）項目は2018年5月以来の好水準に上昇した。 欧州の製造業も今年改善するはずだ。ZEW指数のドイツ成長期待は1月に急騰し、2015年7月以来の高水準となった（チャート 1）。SentixやIFO指数も上昇している。励みになることに、ユーロ圏の自動車登録台数は12月に前年比22％増加した。 英国では、製造業者対象のCBI調査における企業信頼感が2019年Q3の-44からQ4で+23へと急上昇し、この調査の62年の歴史で最大の上昇幅となった。財政刺激策と混乱を伴うブレグジットのリスク低下も今年の成長を押し上げるだろう。 チャート 1 ユーロ圏に表れ始めた回復の兆し Some Green Shoots Emerging In The Euro Area Some Green Shoots Emerging In The Euro Area チャート 2 新興アジアは回復基調にある EM Asia Is Rebounding EM Asia Is Rebounding アジアの製造業および貿易データは改善している。先週の中国の貿易データ改善を受けて、韓国の輸出は変化率ベースで4か月連続の回復を示した。対中向けの日本の輸出は昨年2月以来初めて増加した。台湾では12月の鉱工業生産と輸出受注が予想を上回った。当社の新興アジア経済ディフュージョン指数は2018年10月以来の高水準に上昇している（チャート 2）。 コロナウイルス：侮れない存在か？ コロナウイルスの感染拡大は、芽生えつつある世界経済の回復に対する短期的な脅威を表している。概念的には、流行は経済に2つの方法で影響を及ぼし得る。第一に、旅行、娯楽、レストラン、あるいは他者との近接を伴うあらゆる支出を抑制することで需要を減らす。第二に、人々が出勤を避けることで供給を減少させる。 実際には、第一の影響が通常第二を上回る。その結果、そのような流行はデフレ圧力をもたらす傾向がある。 ブルッキングス研究所は、2003年のSARS流行が中国の当該年の成長率を約1ポイント押し下げたと推定している。1 今回の流行が中国の旧正月期間中に発生しており、4億人を超える人々が移動する時期であることは、ウイルスの伝播を助長し、経済的被害を増幅させる可能性がある。 とはいえ、同じ動物由来ウイルスの一群に属するものの、初期の所見では今回の株はSARSほど致死的ではない可能性が示唆されている。加えて、中国当局はSARS流行時よりも速やかにリスク対応を行っている。感染源と見られる人口1100万人の武漢市を事実上隔離し、ウイルスの配列を解析して国際医療コミュニティと共有した。これにより米国疾病対策センター（CDC）はウイルス検査を開発でき、数週間以内に利用可能になる見込みである。 低失業率の負の側面 コロナウイルスの流行が封じ込められることを前提とすれば、より強い世界成長は残存する労働市場の余剰を吸収し続けるだろう。ここで問題になるのは、失業率が低下し続けると、ある時点でそれが逆効果になり得るかどうかである。 コロナウイルスの感染拡大は、芽生えつつある世界経済の回復に対する短期的な脅威を表している。 OECDの失業率は現在5.1%で、2007年の最安値5.5%を下回っている（チャート 3）。米国では失業率は50年ぶりの低水準に低下している。 チャート 3 ほとんどの経済で失業率は危機前の最安値を下回っている Who’s Afraid Of Low Unemployment? Who’s Afraid Of Low Unemployment? 金融危機以降の失業率の低下は歓迎すべき動きであることは誰も否定しない。しかし、それには1つの主要なリスクが伴う。歴史的に、失業率が非常に低い水準に低下すると景気後退の可能性が高まることが示されている（チャート 4）。 チャート 4 労働市場が過熱し始めると景気後退の可能性が高まる Who’s Afraid Of Low Unemployment? Who’s Afraid Of Low Unemployment? この正の相関を説明するために3つの経路が提案されている：1) 失業率の低下により家計や企業が過度に拡張して経済が脆弱になること、2) 逼迫した労働市場に起因する賃金上昇が利益率を圧迫し、設備投資や採用を抑制すること、3) 潜在余力の縮小がインフレを促し、これが中央銀行に利上げを強いることで成長を抑制すること。 それぞれを順に検討しよう。 失業率と非合理的な熱狂 チャート 5 一部の経済で拡大する住宅の不均衡 Growing Housing Imbalances In Some Economies Growing Housing Imbalances In Some Economies 強い経済はリスクテイクを促進する。ある程度のリスクテイクは資本主義にとって不可欠だが、過度のリスクテイクは不均衡の蓄積を招き、最終的な下振れの舞台を整える可能性がある。 オーストラリア、ニュージーランド、カナダ、北欧諸国では、低金利と強い経済成長の組み合わせが家計債務を伴う住宅バブルを煽っている（チャート 5、パネル3）。先週議論したとおり、それらの経済で金利が上昇すれば経済的な困窮の芽を生む可能性がある。2 その他ほとんどの国では、金融の不均衡は景気後退を引き起こすほど深刻ではない。チャート 6は、民間部門の金融バランス（民間部門の収入と支出の差）が先進国では依然としてGDPの3.4％の健全な黒字を保っていることを示している。2007年には先進国の民間部門金融バランスは0.4％に低下し、米国では2％の赤字に達していた。民間部門のバランスは2001年の景気後退前にも急速に悪化していた（チャート 7）。 チャート 6 ほとんどの経済で民間部門の支出は所得を下回っている Who’s Afraid Of Low Unemployment? Who’s Afraid Of Low Unemployment? チャート 7 民間部門の黒字は前回の景気拡大終了前よりも大きい The Private-Sector Surplus Is Larger Than It Was Before The End Of Previous Expansions The Private-Sector Surplus Is Larger Than It Was Before The End Of Previous Expansions   米国では個人貯蓄率が約8％まで上昇しており、家計の純資産水準から予想される水準よりもはるかに高い（チャート 8）。2018/19年に実質個人消費は約2.5％で成長したが、消費者信頼感の水準から予想されるペースよりも遅かった。これは家計が比較的慎重な態度を維持していることを示唆している。これと整合的に、家計の負債対可処分所得比は2008年以降で32ポイント低下している。 チャート 8 家計は予想以上に貯蓄している Households Are Saving More Than One Would Expect Households Are Saving More Than One Would Expect 確かに、いくつかのクレジットカテゴリは大きく増加している（チャート 9）。学生ローンは可処分所得の9％に達している。自動車ローンはリセッション前の高水準に戻っている。 前者については大半の学生ローンが政府によって保証されているため、それほど心配していない。自動車ローンの方が懸念材料ではある。しかし、自動車ローン市場は住宅ローン市場の6分の1未満の規模であることを留意しておくべきだ。 さらに、2011年から2016年にかけて自動車ローンの与信基準を緩めた後、銀行はその基準を引き締めてきた。この調整はほぼ完了しているように見える。最新のシニアローン担当者調査では与信基準はこれ以上引き締まらず、自動車ローン需要は2年ぶりの速さで増加した。自動車ローンの延滞に陥る割合は低下傾向にあり、延滞率はピークに達していることを示唆している（チャート 10）。 チャート 9 学生ローンと自動車ローンの増加にもかかわらず米国の家計債務は低下している US Household Debt Levels Have Fallen, Despite Increases in Student And Auto Loans US Household Debt Levels Have Fallen, Despite Increases in Student And Auto Loans チャート 10 自動車ローン：与信基準と延滞率の動向をモニタリング Auto Loans: Monitoring Trends In Credit Standards And Delinquency Rates Auto Loans: Monitoring Trends In Credit Standards And Delinquency Rates 最後に、自動車市場の騒ぎにもかかわらず、自動車ローン担保証券は良好なパフォーマンスを示していることを指摘しておきたい（チャート 11）。デフォルト率は上昇しているが、貸し手は通常、発生する損失を吸収できるだけの利率を設定している。 チャート 11 証券化された自動車ローンは良好な実績を示している Securitized Auto Loans Have Performed Well Securitized Auto Loans Have Performed Well 利益率の低下は景気拡大を狂わせるか？ 利益率は通常、景気後退の発生の数年前にピークに達することが多い（チャート 12、上段）。このため、利益率の低下が企業の採用意欲や新たな生産能力への投資意欲を削ぎ、景気後退をもたらすのではないかと推測する者もいる。 チャート 12 利益率のピーク：不吉な兆候か？ A Peak In Profit Margins: An Ominous Sign? A Peak In Profit Margins: An Ominous Sign? 興味深い理論ではあるが、精査すると支持されにくい。企業景況感調査は明確に、設備投資の意図は賃上げ計画と正の相関があることを示している（チャート 13、左パネル）。賃金の上昇に応じて設備投資を削減するどころか、賃上げを計画している企業の方がむしろ設備投資を増やす傾向がある。 チャート 13A 賃金上昇、採用増、設備投資の増加は同時に進む（I） Faster Wage Growth, Increased Hiring, And More Capex Go Hand In Hand (I) Faster Wage Growth, Increased Hiring, And More Capex Go Hand In Hand (I) チャート 13B 賃金上昇、採用増、設備投資の増加は同時に進む（II） Faster Wage Growth, Increased Hiring, And More Capex Go Hand In Hand (II) Faster Wage Growth, Increased Hiring, And More Capex Go Hand In Hand (II) その一因は、賃金上昇が自動化をより魅力的にすることである。自動化は定義上、より多くの設備投資を必要とする。しかし、それだけが理由ではなく、賃金成長が高まっている期間には企業は同時により多くの労働者を雇用する傾向がある（チャート 13、右パネル）。 これは第三の要因―強い経済成長―が賃金と採用意図の両方を加速させていることを示唆している。実際、実質の企業売上は雇用成長と非住宅投資の双方と強く相関していることがこの主張の証拠である（チャート 12、下段）。 利益率低下：問題の症状に過ぎない 上記の議論は、賃金の加速が企業を採用や設備投資から思いとどまらせる可能性は低いことを示唆している。むしろその逆であろう。一般に、労働者は企業よりも所得の1ドル当たり多くを消費するため、国民所得に占める労働者の取り分が増えれば総需要は上向く。 では、なぜ利益率は通常景気後退前にピークを迎えるのか。その答えは、労働市場の余剰が縮小すると単位労働コストが上昇し、中央銀行が高まるインフレを抑えるために利上げを余儀なくされる傾向があることだ。したがって、利益率の低下は根本問題である経済の過熱の単なる症状にすぎない。景気後退の原因を利益率の低下に帰するべきではない。中央銀行を批判すべきなのである。 インフレはまだ脅威ではない 現時点では、主要経済の単位労働コストのインフレは比較的抑制されている（チャート 14）。しかし、労働市場の余剰と賃金上昇の歴史的関係が崩れたという証拠はほとんどない（チャート 15）。生産性の大幅な上振れがない限り、企業が上昇した労働コストを顧客に転嫁しようとするため、インフレは最終的に加速する可能性が高い。 チャート 14A 当面、単位労働コストは安定している（I） Unit Labor Costs Are Well Behaved For Now (I) Unit Labor Costs Are Well Behaved For Now (I) チャート 14B 当面、単位労働コストは安定している（II） Unit Labor Costs Are Well Behaved For Now (II) Unit Labor Costs Are Well Behaved For Now (II)       チャート 15 労働市場の余剰と賃金上昇の相関は維持されている Correlation Between Labor Market Slack And Wage Growth Remains Intact Correlation Between Labor Market Slack And Wage Growth Remains Intact いつそのような物価・賃金のらせんが出現するかを正確に知ることはできない。インフレは著しく遅行する指標である（チャート 16）。当社の最良の見立てでは、インフレは2021年末から2022年にかけて投資家にとって深刻なリスクになり得る。したがって、投資家は今後12〜18か月はグローバル株式の比重を高める（オーバーウェイト）べきだが、2021年後半にはより慎重になる準備をしておくべきである。 チャート 16 インフレは遅行指標である Who’s Afraid Of Low Unemployment? Who’s Afraid Of Low Unemployment?   Peter Berezin チーフ・グローバル・ストラテジスト peterb@bcaresearch.com   脚注 1   Jong-Wha Lee and Warwick J. McKibbin, “Globalization and Disease: The Case of SARS,” Brookings Institution, 2004年2月付。 2  詳細はグローバル・インベストメント・ストラテジー週次レポート、「Bond Yields: How High Is Too High?」2020年1月17日付を参照のこと。   グローバル・インベストメント・ストラテジー ビュー・マトリクス Who’s Afraid Of Low Unemployment? Who’s Afraid Of Low Unemployment? マクロクォント・モデルと現在の主観的スコア Who’s Afraid Of Low Unemployment? Who’s Afraid Of Low Unemployment? 戦略的推奨 決済済み取引

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Highlights Strikes result from divergent perceptions of bargaining power: A strike reflects a negotiating failure, and negotiations fail when parties cannot agree on which side has the stronger position, typically because at least one of them overestimates its leverage. Once a strike starts, broad macro factors influence the outcome: Labor market slack, economic concentration, trends in labor relations law and regulations, and the gap between labor’s and management’s fortunes (if extreme) are the key macro determinants of negotiating leverage. Key factors that have bolstered management for decades are poised to reverse: Legal and regulatory trends have little room to improve from management’s perspective, and the gap between management’s and labor’s share of rewards is ripe for narrowing. A union resurgence is a low-probability, high-impact event: We view the potential for labor to gain the upper hand over management as a low-probability event that would have a significant impact on markets if it did come to pass, so it merits a close look. Feature We concluded Part 1 by highlighting two consistent themes from the modern history of the US labor movement: successful strikes beget strikes, and employees are unlikely to make gains if judges and government officials are disposed to favor management. In this installment, we will focus on the factors that encourage strikes and the non-government determinants of their success. Part 3 will focus on public opinion, elected officials and the judiciary. Our ultimate goal is to evaluate relative bargaining power, and the potential for organized labor to push wages significantly higher, upending the risk-friendly status quo. The Origin Of Strikes Strikes (and lockouts) occur when labor and management cannot reach a mutually acceptable settlement, often because at least one side overestimates its bargaining power. It is easy to agree when labor and management hold similar views about each side’s relative power, as when both perceive that one of them is considerably stronger. In that case, a settlement favoring the stronger side can be reached fairly quickly, especially if the stronger side exercises some restraint and does not seek to impose terms that the weaker side can scarcely abide. Restraint is rational in repeated games like employer-employee bargaining, and when both parties recognize that relative bargaining positions are fluid, they are likely to exercise it. History shows that the pendulum between labor and management swings, albeit slowly, as societal views evolve1 and the business cycle fluctuates. As a general rule, management will have the upper hand during recessions, when the supply of workers exceeds demand, and labor will have the advantage when expansions are well advanced, and capacity tightens. A high unemployment rate broadly favors employers, and a low unemployment rate favors employees. Neither the number of work stoppages (Chart 1, top panel), nor the number of workers involved (Chart 1, middle panel) correlates very well with the unemployment gap (Chart 1, bottom panel), in the Reagan-Thatcher era, however, as work stoppages have dwindled almost to zero. Chart 1Swamped By The Legal And Regulatory Tide Game theory is better equipped than simple regression models to offer insight into the origin of strikes. We posit a simple framework in which each side can hold any of five perceptions of its own bargaining power, resulting in a total of 25 possible joint perceptions. Management (M) can believe it is way stronger than Labor (L), M >> L; stronger than Labor, M > L; roughly equal, M ≈ L; weaker than Labor, L > M; or way weaker than Labor, L >> M. Labor also holds one of these five perceptions, and the interaction of the two sides’ perceptions establishes the path negotiations will follow. The fur flies when each party thinks the other should make the bulk of the concessions: labor negotiations over the next couple of years could be interesting. Limiting our focus to today’s prevailing conditions, Figure 1 displays only the outcomes consistent with management’s belief that it has the upper hand. For completeness, the exhibit lists all of labor’s potential perceptions, but we deem the two in which labor is feeling its oats (circled) to be most likely, given the success of recent high-profile strikes.2 Management’s confidence follows logically from four decades of victories, but may prove to be unfounded if its power has already peaked. Figure 1The Eye Of The Beholder Strike outcomes turn on which side has overestimated its leverage. The broad factors we use to assess leverage are overall labor market slack; economic concentration; regulatory and legal trends; and the sustainability of either side’s accumulated advantage, which we describe as the labor-management rubber band. Other factors that matter on a case-by-case basis, but are beyond the scope of our analysis, include industry-level slack, a labor input’s susceptibility to automation, and the degree of labor specialization/skill involved in that input. For these micro-level factors, a given group of workers’ leverage is inversely related to the availability of substitutes for their input. Labor Market Slack Chart 2Surprise Wage Retracements Despite muted wage growth (Chart 2), the labor market is demonstrably tight. The unemployment rate is at a 50-year low, the broader definition of unemployment is at the lowest level in its 26-year history, and the prime-age employment-to-population ratio is back to its 2001 levels, having surpassed the previous cycle’s peak (Chart 3). The job openings rate is high, indicating that demand for workers is robust, and so is the quits rate, indicating that employers are competing vigorously to meet it. The NFIB survey’s job openings and hiring plans series (Chart 4) echo the JOLTS findings. Chart 3Prime-Age Employment Is At An 18-Year High ... Chart 4... But There Are Still Lots Of Help Wanted Signs The lack of labor market slack decisively favors workers’ negotiating position. It is a sellers’ market when demand outstrips supply, and labor victories tend to be self-reinforcing. Successful strikes beget strikes, and management volunteers concessions as labor peace becomes a competitive advantage during strike waves. Given that the crisis-driven damage to the labor force participation rate has healed as the gap between the actual part rate (Chart 5, solid line) and its demographically-determined structural proxy has closed (Chart 5, dashed line), the burden of proof rests squarely with those who argue that there is an ample supply of workers waiting to come off the sidelines. Chart 5The Labor Force Participation Gap Has Closed Economic Concentration Chart 6Less Competition = More Power The trend toward economic concentration (Chart 6) has endowed the largest companies with greater market power, as evidenced by surging corporate profit margins. The greater the concentration of employment opportunities in local labor markets, the more closely they resemble monopsonies.3 Unfortunately for labor, monopsonies restrain prices just as monopolies inflate them. As our Bank Credit Analyst colleagues have shown,4 there is a robust inverse relationship between employment concentration and real wages (Chart 7). Chart 7One Huge Buyer + Plus Multiple Small Sellers = Low Prices Economic concentration has been a major driver of management’s Reagan-Thatcher era dominance. Sleepy to indifferent antitrust enforcement has helped businesses capture market power, and it will continue to prevail through 2024 unless the Democrats take the White House in November. The silver lining for workers is that concentration could have the effect of promoting labor organization in services, where unions have heretofore made limited progress. The only way for employees to combat employers’ monopsony power is to organize their way to becoming a monopoly supplier of labor. Regulatory And Legal Trends Over the last four decades, unions have endured a near-constant drubbing from state capitols, federal agencies and the courts, as union and labor protections have been under siege from all sides. Since the air traffic controllers’ disastrous strike, labor’s regulatory and legal fortunes have most closely resembled the competitive fortunes of the Harlem Globetrotters’ beleaguered opposition. But the regulatory and legal tide has been such a huge benefit for management since the beginning of the Reagan administration that it cannot continue to maintain its pace. Employees and employers need each other, and their tether can only be stretched so far before it starts pulling them back together. Investors seem to assume that it will, however, to the extent that they think about it at all. It stands to reason that employers may be similarly complacent. We will look more closely at the presidential election and its potential consequences in Part 3, but labor concerns and inequality are capturing more attention, even among Republicans. With Republicans’ inclination to side with business only able to go in one direction, the chances are good that it has peaked. The Labor-Management Rubber Band For all of the romantic allure of labor’s battles with management in the Colosseum era, employees and employers have a deeply symbiotic relationship. One can’t exist without the other, and pursuing total victory in negotiations is folly. Even too many incremental wins can prove ruinous, as the UAW discovered to its chagrin in 2008. A half-century of generous compensation and stultifying work rules saddled Detroit automakers with a burden that would have put them out of business had the federal government not intervened. Table 1Average Salaries Of Public School Teachers By State We think of labor and management as being linked by a tether with a finite range. Since neither side can thrive for long if the other side is suffering, the tether pulls the two sides closer together when the gap between them threatens to become too wide. When labor does too well for too long at management’s expense, profit margins shrink and the company’s viability as a going concern is threatened. When management does too well, deteriorating living standards drive the best employees away, undermining productivity and profitability. Before the low-paying entity’s work force becomes a listless dumping ground for other firms’ castoffs, it may rise up and strike out of desperation. Teachers’ unions might have appeared to be setting themselves up for a fall in 2018 by illegally striking in staunchly conservative West Virginia, Oklahoma and Arizona, but desperate times call for desperate measures. Per the National Education Association’s data for the 2017-18 academic year, average public school teacher pay in West Virginia ranked 50th among the 50 states and the District of Columbia, Oklahoma ranked 49th and Arizona ranked 45th (Table 1). Adjusting the nominal salaries for cost disparities across states, West Virginia placed 41st, Oklahoma 44th and Arizona 48th. Given that real teacher salaries had declined by 8% and 9% since 2009-10 in West Virginia and Arizona, respectively, the labor-management rubber band had stretched nearly to the breaking point. Consolidating The Macro Message Parties to negotiations derive leverage from the availability of substitutes. When alternative employment opportunities are prevalent, workers have a lot of leverage, because they can credibly threaten to avail themselves of them. Teaching is a skill that transfers easily, and every state has a public school system, so teachers in low-salary states have a wealth of ready alternatives. The converse is true for low-salary states; despite much warmer temperatures, it is unlikely that teachers from top-quintile states will be willing to take a 25-33% cost-of-living-adjusted pay cut to decamp to Arizona (Table 2). Table 2Cost Of Living-Adjusted Public School Teacher Salaries By State It is easy to see from Figure 2 why management has had the upper hand. Economic concentration and the legal and regulatory climate have increasingly favored it for decades. The immediate future seems poised to favor labor, however, as the legal and regulatory climate cannot get materially better for employers, and the labor-management rubber band has become so stretched that some sort of mean reversion is inevitable. We have high conviction that labor’s one current advantage, a tight labor market, will remain in its column over the next year or two. On a forward-looking basis, the macro factors as a whole are poised to support labor. Figure 2Macro Drivers Of Negotiating Leverage​​​​​​​ Takeaways After discussing this Special Report series with clients, we realized our views could easily be misinterpreted. We are not calling for an imminent union revival that drives wages higher across industries. To be clear, we think it is more likely than not that the labor movement in the United States will remain weak relative to its 1950s to 1970s heyday. We do think, however, that the probability that unions could rise up to exert the leverage that accrues to workers in a tight labor market is considerably larger than the great majority of investors perceive. Alpha – market-beating return – arises from surprises. An investor captures excess returns when s/he successfully anticipates something that the consensus does not. If the disparity involves a trivial outcome, then any excess return is likely to be trivial, but if the outcome is significant, the investor who zigged when the rest of the market zagged stands to separate him/herself from the pack. Management has been in the driver's seat, but the factors that have kept it there have a high risk of reversing. We think the outcome of a shift in leverage from employers to employees would be very large indeed. We would expect that aggregate wage gains of 4% or higher would quickly drive the Fed to impose restrictive monetary policy settings, eventually inducing the next recession and the end of the bull markets in equities, credit and property. A union revival may be a low-probability event, but it would have considerable impact on markets and the economy. Given our conviction that the probability, albeit low, is much greater than investors expect, we think the subject is well worth sustained attention. We will examine public opinion and its effect on elected officials and the courts in Part 3, which will conclude our examination of labor-management dynamics. We will publish that installment on February 3rd; next week we will publish a joint US Investment Strategy – US Bond Strategy Special Report on commercial real estate, lead-authored by Jennifer Lacombe.   Doug Peta, CFA Chief US Investment Strategist dougp@bcaresearch.com Footnotes 1 We will discuss public opinion, and its impact on elected officials and courts, in Part 3. 2 Please see the January 13, 2020 US Investment Strategy Special Report, “Labor Strikes Back, Part 1: An Investor’s Guide To US Labor History,” available at www.bcaresearch.com. 3 A monopsony is a market with a single buyer, akin to a monopoly, which is a market with only one seller. 4 Please see the July 2019 Bank Credit Analyst Special Report, “The Productivity Puzzle: Competition Is The Missing Ingredient,” available at bcaresearch.com.

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Highlights The balance of power in US labor negotiations has shifted infrequently in the industrial age: Management completely dominated labor before the New Deal, which gave rise to a 45-year labor golden age that lasted until the Reagan revolution and globalization put employers firmly back in control. Employees rarely make gains without sympathetic elected officials and judges: The New Deal was a watershed in labor relations history because it granted workers legal protections that leveled the playing field with employers. Successful strikes beget strikes: Momentum matters in labor negotiations. One union’s win may embolden other unions to strike, blazing a path for further gains by demonstrating that the price of labor peace has risen. The pendulum may be swinging back in labor’s favor: Unions still face formidable headwinds in Washington, DC and state capitals, but a run of successful strikes may signal that rumors of the labor movement's demise have been exaggerated. Feature Where will inflation come from, and when will it arrive? An investor who answers these questions will have advance notice of the end of the expansion and the bull markets in equities and credit. Per our base-case scenario, the expansion won’t end until monetary policy settings become restrictive, and the Fed won’t pursue restrictive policy unless inflation pressures force its hand. Inured by a decade of specious warnings that “money printing” would let the inflation genie out of the bottle, investors are skeptical that inflation will ever re-emerge. The inflation backdrop has become much more supportive in the last few years, however, upon the closing of the output gap, and the stimulus-driven jolt in aggregate demand. Output gaps in other major economies will have to narrow further (Chart 1) for global goods inflation to gain traction, and mild inflation elsewhere in the G7 (Chart 2) suggests that goods prices are not about to surge. Chart 1There's Still Enough Spare Capacity ... Chart 2... To Restrain Global Goods Inflation Services are not so easily imported, though, and services inflation is a more fully domestic phenomenon. Rising wages could be the spur for services inflation, and the labor market is tight on several counts: the unemployment rate is at a 50-year low; the broader definition of unemployment, also encompassing discouraged workers and the underemployed, reached a new all-time (25-year) low in December; the JOLTS job openings and quits rates at or near their all-time (19-year) highs; and the NFIB survey and a profusion of anecdotal reports suggest that employers are having a hard time finding quality candidates. With labor demand exceeding supply, wages for nonsupervisory workers have duly risen (Chart 3). Gains in other compensation series have been muted, however, and investors have come to yawn and roll their eyes at any mention of the Phillips Curve. Chart 3Wage Growth Is Solid, But It's Lost A Good Bit Of Momentum Perhaps it’s not the Phillips Curve that’s broken, but workers’ spirits. A supine organized labor movement could explain why the Phillips Curve itself is so flat. As the old saying goes, if you don’t ask, you know what you’re going to get, and beleaguered unions and their memberships, cowed by two decades of woe coinciding with China’s entry into the WTO (Chart 4), have been afraid to ask. Strikes are the most potent weapon in labor’s arsenal; if it can’t credibly wield them, it is sure to be steamrolled. Chart 4Globalization Has Been Unkind To Labor Two years of high-profile strike victories by public- and private-sector employees may suggest that the sands have begun to shift, however, and inspired our examination of labor’s muscle. This first installment of a multi-part Special Report focuses on the history of US labor relations, with an eye toward identifying themes that shape relative bargaining power. We will subsequently examine the factors influencing the propensity for labor and management militancy, with a focus on where wages are headed in the near future. The Colosseum Era (1800-1933) We view US industrial labor history as having three distinct phases. We label the first, which lasted until the New Dealers took over Washington, the Colosseum era (Figure 1), because labor and management were about as evenly matched as the Christians and the lions in ancient Rome. Uprisings in textile mills, steel factories, and mines were swiftly squelched, often violently. Management was able to draw on public resources like the police and state National Guard units to put down strikes, or was able to unleash its own security or ad hoc militia forces on strikers or union organizers without state interference. The public, staunchly opposed to anarchists and Communists, generally sided with employers. Figure 1Significant Events In The Colosseum Era Unions won some small-bore victories during the period, but they nearly all proved fleeting as companies regularly took back concessions and public officials and courts failed to enforce the loose patchwork of laws aimed at ameliorating industrial workers’ plight. Labor inevitably suffered the brunt of the casualties when conflicts turned violent. Workers were hardly choir boys, and seem to have initiated violence as often as employers’ proxies, but they were inevitably outgunned, especially when police, guardsmen or soldiers were marshaled against them. Societal norms have changed dramatically since the Colosseum era, but the lore of past “battles” encourages an us-versus-them union mentality that occasionally colors negotiations. The UAW Era (1933-1981) Established presumptions about the employer-employee relationship were upended when FDR entered the White House. Viewing labor organization as a way to ease national suffering, New Dealers passed the Wagner Act to grant private-sector workers unionization and collective bargaining rights, and created the National Labor Relations Board to ensure that employers respected them. The Wagner Act greatly aided labor organization, enabling unions to build up the heft to engage with employers on an equal footing. Unionized workers still fought an uphill battle in the wake of the Depression, but tactics like the sit-down strike (Box) produced some early labor victories that paved the way for more. The UAW signed a similar accord with Chrysler immediately after the Flint sit-down strike, and the CIO (the UAW’s parent union) swiftly reached an agreement with US Steel that significantly improved steelworkers’ pay and hours. Labor unions’ path wasn’t always smooth – Ford fiercely resisted unionization until 1941, and ten protesters were killed, and dozens injured, by Chicago police at a peaceful Memorial Day demonstration in support of strikers against the regional steelmakers that did not follow US Steel’s conciliatory lead – but it generally trended upward after the New Deal (Figure 2). From the 1950 signing of the Treaty of Detroit, a remarkably generous five-year agreement between the UAW and the Big Three automakers, the UAW ran roughshod over the US auto industry for three-plus decades. The New Deal’s encouragement of unionization had given labor a fighting chance, and was the foundation on which all of its subsequent gains were built. Figure 2Significant Events In The UAW Era Box David Topples Goliath: The Flint Sit-Down Strike The broad mass of factory workers had not been organized to any meaningful degree before the New Deal, and the United Auto Workers (UAW) was not formed until 1935. Despite federal protections, the fledgling UAW had to conduct its operations covertly, lest its members face employer reprisals. At the end of 1936, when it took on GM, only one in seven GM employees was a dues-paying member. The strike began the night of December 30th when workers in two of GM’s Flint auto body plants sat down at their posts, ignoring orders to return to work. The sit-down action was more effective than a conventional strike because it prevented GM from simply replacing the workers with strikebreakers. It also made GM think twice about attempting to remove them by force, lest valuable equipment be damaged. GM was unsure how to dislodge the workers after a court injunction it obtained on January 2nd went nowhere once the UAW publicized that the presiding judge held today’s equivalent of $4 million in GM shares. It turned off the heat in one of the plants on January 11th, before police armed with tear gas and riot guns stormed it. The police were rebuffed by strikers who threw bottles, rocks, and car parts from the plant’s upper windows while spraying torrents of water from its fire hoses. No one died in the melee, but the strike was already front-page news across the country, and the attack helped the strikers win public sympathy. Michigan’s governor responded by calling out the National Guard to prevent a rematch, shielding the strikers from any further violence. The strike was finally settled on February 11th when GM accepted the UAW as the workers’ exclusive bargaining agent and agreed not to hinder its attempts to organize its work force. The Reagan-Thatcher Era (1981 - ??) The disastrous strike by the air traffic controllers’ union (PATCO) is the watershed event that heralded the end of unions’ golden age. Strikes by federal employees were illegal, so PATCO broke the law when it went on strike in April 1981, spurning the generous contract terms its leaders had negotiated with the Reagan administration. PATCO had periodically held the flow of air traffic hostage throughout the seventies to extract concessions from its employer, earning the lasting enmity of airlines, government officials and the public. Other unions were aghast at PATCO’s openly contemptuous attitude, and declined to support it with sympathy strikes, while conservatives blasted the new administration behind closed doors for the profligacy of its initial PATCO offer. President Reagan therefore had an unfettered opportunity to make an example out of the controllers, and he seized it, firing those who failed to return to work within 48 hours and banning them from ever returning to government employment. A fed-up public supported the president’s hard line, and employers and unions got the message that a new sheriff was in town. His deputies were not inclined to enforce labor-friendly statues, or investigate labor grievances, with much vigor, and they would not necessarily look the other way when public sector unions illegally struck. Unions also found themselves on the wrong side of the growing disaffection with bureaucracy that was bound up with the push for deregulation. The globalization wave further eroded labor’s power. Unskilled workers in the developed world would be hammered by the flat world that allowed people, capital and information to hopscotch around the globe. Eight years of a Democratic presidency brought no relief, as the “Third Way” Clinton administration embraced the free-market tide (Chart 5), and the unionized share of employees has receded all the way back to mid-thirties levels (Chart 6). Chart 5Inequality Took Off ... Chart 6... As Unions Lost Their Way A Fourth Phase? A handful of data points do not make a trend, especially in a series that stands out for its persistence, but the bargaining power pendulum could be shifting. Public school teachers won improbable statewide victories with illegal strikes in three highly conservative states in the first half of 2018 (Table 1); a canny hotel workers union steered its members to big gains in their contract negotiations with Marriott in the second half of 2018; and the UAW bested General Motors and the rest of the Big Three automakers last fall. Unions may have more bargaining power than markets and employers realize, and they could be on the cusp of becoming more aggressive in flexing it. The next installment(s) in this series will examine the factors determining whether or not unions will become more assertive and the likelihood that more assertive bargaining would meet with success. Table 1Teachers' Unions Conquer The Red States Takeaways There is not sufficient space to explore those factors in this installment, but we conclude by highlighting two key themes that emerge from our historical review. US industrial history makes it clear that employees are unlikely to gain ground if government sides with employers. Employees no longer have to fear that the state will look the other way while strikers are beaten, or fail to prosecute those responsible for loss of life, but they face especially long odds when the government is inclined to favor employers. Its thumb weighs heavily on the scale when it drags its feet on enforcement; cuts funding to agencies policing workplace standards; and appoints agency or department heads that are conditioned to see things solely from employers’ perspective, shaped by long careers in management. Successful strikes beget strikes, and the converse is also true. Withholding their labor is employees’ most powerful weapon, and when employers can’t replace them cheaply and easily, strikes often succeed. Striking is frightening for an individual, however, because it cuts off his or her income (or sharply reduces it, if the striker’s union has a strike fund) until the strike is over. If the strike fails, the employee may find him/herself blacklisted, impairing his/her long-term income prospects on top of his/her short-term losses. Prudent workers should therefore strike sparingly, with the due consideration that a prudent poker player exercises before going all-in. When other unions facing comparable conditions pull off successful strikes, it makes it much easier for another union to take the leap, in addition to making success more likely, provided conditions truly are comparable. “Before they occur, successful strikes appear impossible. Afterward, they seem almost inevitable .”1 The retrospective inevitability stiffens the spine of potential strikers who observe successful outcomes, and raises the bar for action among potential strikers who observe failures. “Just as defeats in struggle lead to demoralization and resignation, victories tend to beget more victories .”2 Public opinion matters just as surely as momentum, and it proved decisive in the Flint sit-down strike and in the air traffic controllers’ showdown with President Reagan. According to Gallup’s annual poll, Americans now regard unions as favorably as they did before Thatcher and Reagan came to power (Chart 7). We will dive more deeply into the topic in our next installment, as we probe labor market conditions for insight into the direction of inflation, and its implications for Fed policy, the business cycle and markets. Chart 7Could Unions Make A Comeback?   Doug Peta, CFA Chief US Investment Strategist dougp@bcaresearch.com Footnotes 1 Blanc, Eric. Red State Revolt: The Teachers’ Strike Wave and Working-Class Politics, Verso: New York (2019), p. 204. 2 Ibid, p. 209.

Highlights Easy monetary policy is the linchpin of our 2020 market views and investment strategy, … : As we outlined in our 2020 Key Views report, easy monetary policy should extend the economic expansion and the bull markets in risk assets. ... and last week’s FOMC meeting made it crystal clear that the Fed’s default policy setting for next year is easy: The meeting came and went without much of a fuss, but the FOMC revealed that it will take a major inflation surprise to bring it off the sidelines in 2020. The labor market still has plenty of momentum, and should help keep the real economy humming, … : Through November, 2019’s average net monthly job gains are snugly within the last nine years’ range, and the JOLTS and NFIB surveys point to more hiring and accelerated wage gains. … while trade tensions are apparently less likely to derail it: Details remained vague as we went to press, but Chinese and American trade negotiators have reportedly reached a Phase 1 agreement that will be executed soon. Feature Dear Client, This is our last report of 2019. Our regular publishing schedule will resume on Monday, January 6th. We wish you a happy, healthy and prosperous new year. Chart 1The Fed Stood Down In 2019 Why bother fighting the Fed? Central bankers exert tremendous sway over the economy and markets, and although they’re hardly infallible, they typically get their way over the timeframes that most investors are judged. It’s much easier to make money going with the monetary policy flow than it is to try to resist it, because resistance is only viable when the Fed is plainly behind the curve. Consistent money-making investment strategies revolve around deploying capital when the odds are in one’s favor, and they’re stacked in favor of risk assets when policy is easy, and against them when it’s tight. We missed the latest instance when the Fed was fighting a losing battle at this time last year, when we continued to stick with our below-benchmark-duration recommendation. The money markets called for a 25-basis-point rate cut in 2019 in defiance of the FOMC, which projected 50 basis points ("bps") of hikes (Chart 1). We sided with the Fed, and wound up on the wrong side of the 10-year Treasury rally from 2.70% at the beginning of January to under 1.50% at the end of August. Since the crisis, however, BCA has remained squarely in the easier-for-longer monetary policy camp, which has led us to recommend overweighting stocks throughout the longest US equity bull market on record. The importance of the Fed’s influence was all over the 2020 outlook we laid out last week. The common thread linking our market views and investment strategy is the expectation that monetary policy settings will remain amply accommodative until the election is over. Easy monetary conditions are not confined to the US; major central banks around the world are deliberately pursuing reflationary policy. With the wind of an additional year of generous accommodation filling their sails, we expect that equities and spread product will easily outperform Treasuries and cash in 2020. The Latest From The Fed Chart 2Same Outlook, Fewer Hikes The run-up to last week’s FOMC meeting was devoid of suspense, but members’ dot-plot projections and Chair Powell’s press conference supported our sense that promoting higher inflation expectations is the Fed’s foremost priority. Our base case remains that the Fed will stay on hold at least until its November meeting. Although the Fed remains at pains to remind investors that policy is not on a preset course, the committee clearly expects the growth-without-inflation sweet spot will last through 2020 and beyond. As a group, the 17 FOMC members dialed back their rate-hike expectations from the September meeting, rescinding a net 13 votes for 25-bps hikes in 2020 (Chart 2, top panel) and 7 in 2021 (Chart 2, bottom panel). Several of Powell’s comments at the press conference reinforced the take that the Fed is on hold for the foreseeable future. In his prepared remarks, he repeated the message from the July, September and October meetings that the Fed has not yet accomplished its full-employment mandate. “[W]ages have been rising, particularly for lower-paying jobs. [I]n low- and middle-income communities, … many who have struggled to find work are now finding new opportunities. [Broad-based employment gains] underscore … the importance of sustaining the expansion so that the strong job market reaches more of those left behind.” When the chair says that unemployment can be a full percentage point below NAIRU for an extended period without generating "unwanted upward pressure on inflation," ... He characterized low inflation as a mixed blessing, and was more explicit about the need to get it higher than he was in the past three meetings, when the committee actually cut rates. “While low and stable inflation is certainly a good thing, inflation that runs persistently below our objective can lead to an unhealthy dynamic in which longer-term inflation expectations drift down, pulling actual inflation even lower. In turn, interest rates would be lower as well and closer to their effective lower bound. As a result, the scope for interest rate reductions to support the economy in a future downturn would be diminished, resulting in worse economic outcomes for American families and businesses. … We are strongly committed to achieving our symmetric 2 percent inflation goal.” In the Q&A segment of the press conference, Powell amplified the boilerplate employment language with repeated assertions that the labor market still has some slack. [W]e think we’ve learned that unemployment can remain at quite low levels for an extended period of time without unwanted upward pressure on inflation. In fact, we need some upward pressure [on] inflation to get back to 2 percent. … [E]ven though we’re at three-and-a-half percent unemployment, there’s actually more slack out there. … I’ll say that the labor market is strong. I don’t know that it’s tight because you’re not seeing wage increases[.] … Ultimately[,] … to call it hot, you’d want to see heat. You’d want to see … higher wages. That take contrasts with the Congressional Budget Office’s 4.6% NAIRU estimate, but NAIRU is only a concept. To this point, the economy has been supporting an unemployment rate in the low-3s without overheating, and economists will only have a clear idea of where NAIRU is today well after the fact. The relevant point for investors is that an FOMC that believes the natural rate of unemployment is below its current 50-year low is an FOMC that has sworn off proactive tightening. ... you know the FOMC isn't going to tighten policy pre-emptively. The chair also elaborated on the inflation mandate by saying that “a significant move up in inflation that’s also persistent” is a personal prerequisite for tightening policy. Our US Bond Strategy colleagues interpret “persistent” as meaning that inflation expectations have to get back to the 2.3-2.5% range that is consistent with the Fed’s 2% inflation target. Taken together, the prepared remarks, the Q&A and the fairly significant downward adjustment in the dots – absent any change in the outlook – suggest that the Fed’s reaction function has shifted materially. It will take a significant pickup in inflation, or undeniable signs of froth in the financial markets, for the Fed to tighten policy. The Labor Market Remains On Track November marked the record 110th consecutive month that net nonfarm payrolls have expanded, and the rest of the employment situation report confirmed that the jobs machine continues to motor along eleven years into the expansion (Chart 3). The annual job gains have not been as large as they often were in the 1991-2001 expansion, but they have been remarkably steady since 2011, averaging an even 200,000 net additions per month without once dipping below 170,000 for a full year (Chart 4). The unemployment rate fell back to the 3.5% 50-year low first reached in September, and the broader unemployment rate, capturing discouraged workers and involuntary part-time workers, is just a tick above the dot-com boom’s 6.8% low (Chart 5). Chart 3The Job Gains Haven't Been As Big As They Were In The '90s, ... Chart 4... But They've Been Remarkably Steady Chart 5All Unemployment Measures Are Extremely Low Neither the JOLTS nor the NFIB survey offers any indication that employment gains are about to dry up. JOLTS job openings have exceeded the number of unemployed workers since early 2018, and job openings as a share of overall employment remain way above the last cycle’s peak (Chart 6). The NFIB survey’s share of small businesses with unfilled job openings is similarly extended (Chart 7, top panel), and the diffusion index of firms planning to expand payrolls in the next three months is around its dot-com highs (Chart 7, middle panel). Hiring momentum appears as if it will remain solid over the visible horizon. Chart 6Survey Says ... With labor demand exceeding readily available supply, wage gains ought to accelerate. The prime-age employment-to-population ratio remained at an 11-year high last month, shy of only its dot-com boom highs (Chart 8). The Phillips Curve using the prime-age employment-to-population ratio is not kinked, and exhibits a strong correlation with compensation gains (Chart 9). Chart 7... More Jobs Are On The Way Chart 8Prime-Age Employment Is Back To Its Pre-Crisis Peak   Average hourly earnings for production and nonsupervisory employees, which comprise about 80% of the labor force, have already been growing at a 3.7-3.8% clip, and the Conference Board’s consumer confidence survey (Chart 10, middle panel) and the quits rate (Chart 10, bottom panel) suggest that they can keep climbing. So, too, does the Fed’s pivot; it usually tightens policy to slow the economy when real wage gains reach today’s levels, but now it appears bent on abetting further gains (Chart 10, top panel). Chart 9There Will Be Upward Pressure On Wages, ... Bottom Line: The labor market is strong, and poised to stay that way for the immediate future, especially given that the Fed seems to be egging it on in an attempt to boost inflation expectations and spread the expansion’s gains more evenly. Chart 10... And The Fed Doesn't Mind At All Investment Implications A robust labor market should keep household income growing nicely, and fortified balance sheets will enable households to spend much of their income gains, supporting consumption. Government spending is certain to support the economy ahead of a hotly contested election. We have worried about volatile fixed investment’s potential to stymie growth, largely because of concerns that the uncertainty surrounding trade tensions could cause corporations to pull back on capex until they get a better sense of the rules of the road. The apparent breakthrough in the US-China trade negotiations may resolve some of that uncertainty. With the Fed seemingly settling in for an extended period of holding the target fed funds rate at 1.75%, the risk to our view may be that we’re being insufficiently bullish on the markets. Another year of generous accommodation, here and abroad, is likely to keep life insurers, pension funds and endowments avidly searching for yield. It will be hard to default while that search is afoot, and it will also be hard for spreads to widen in an appreciable way. The combination should allow spread product to continue to generate excess returns over Treasuries and cash, though we echo our US Bond Strategy colleagues’ preference for high-yield over investment-grade corporates. Easy policy also supports equity outperformance. Global ex-US acceleration will benefit international indexes more than US indexes, but US equities will still generate attractive absolute returns. S&P 500 earnings will pick up a little as the rest of the world begins to stir, though truly juicy equity returns will require multiple expansion. We are not yet ready to call for a couple of points of re-rating, but note that it would be consistent with the monetary policy backdrop, the historical sprint-to-the-finish equity bull market pattern, and investors’ need for investment destinations in a persistently low-yield world.   Doug Peta, CFA Chief US Investment Strategist dougp@bcaresearch.com