The strikes that hit ports along the East Coast and Gulf Coast could send prices for food, cars and many other consumer goods soaring, but unless they last too long, the broader impact will be modest. It is expected.
Manufacturers of everything from trucks to toys to artificial Christmas trees are facing obstacles as the International Longshoremen’s Association called for the closure of major container and cargo ports in the East.
From a macro perspective, the impact is time period dependent. President Joe Biden could step in under authority granted by the Taft-Hartley Act and order an 80-day cooling period that would at least temporarily end the suspension, but there is little indication he will do so.
That leaves union and American Maritime Alliance negotiators hopeful that the strike won’t drag on and cause further hardship for the U.S. economy heading into the crucial holiday season.
“Labor actions by longshoremen along the U.S. East Coast and Gulf Coast will have a modest impact on GDP,” said Joseph Brusuelas, chief economist at RSM. He predicted that the increase would be just over 0.1 percentage point. And the loss in imports and exports amounted to $4.3 billion.
“Given that the U.S. economy is currently on a 3% growth trajectory, we do not expect the strike to pose a risk of derailing the domestic economy or prematurely and unnecessarily ending the current economic expansion,” he said. I haven’t.”
In fact, the $29 trillion US economy has avoided multiple landmines and has been in growth mode for the past two years. The Atlanta Fed expects growth to be 2.5% in the third quarter due to an acceleration in net exports.
But a prolonged shutdown could threaten that.
Area affected
Key industries facing challenges include coal, energy, and agricultural products. One rule of thumb is that for each strike date it takes nearly a week for the port to operate at normal levels.
“The cost of a strike will increase over time as the import and export balance increases,” Citigroup economist Andrew Hollenhorst said in a note to clients. “Perishables, such as imported fresh fruit, may be the first to be in short supply. If the strike extends beyond a few days, shortages of certain production inputs could ultimately delay production and The prices of industrial products such as
However, there is a potential buffer against the damage that a strike could cause.
For example, West Coast ports are expected to take over some of the cargo business that normally goes to Eastern ports. Additionally, some companies stockpiled supplies in advance in anticipation of the outage.
Additionally, New York Fed metrics show that pressures on supply chains, which worsened sharply during the pandemic, have eased significantly and are actually below pre-pandemic levels.
“We think concerns about the potential economic impact are overdone,” said Bradley Saunders, North America economist at Capital Economics. “In recent years, frequent shocks to the supply chain have made producers more sensitive to the risk of stock shortages. Companies are therefore likely to have taken precautions in the event of a strike, especially if Because sex has been promoted by the ILA for months. ”
Sanders added that despite the administration’s strong pro-union leanings, he believes the White House is likely to intervene in the fight and impose a cooling period.
“With less than two months until a close election, there is little risk that the administration will jeopardize its recent economic successes,” he said.
threat of inflation
In the meantime, there are many other issues that can complicate the situation.
Just when price pressures appear to have eased from their peak in mid-2022, which pushed annual rates to their highest level in more than 40 years, supply chain bottlenecks could worsen inflation. The Maritime Association is proposing pay increases of close to 50%, another factor that could reignite inflation at the same time as wage pressures recede. Unions want bigger increases and guarantees on automation.
“This is clearly temporary. They’ll come up with some sort of solution,” said Christopher Ball, an economics professor at Quinnipiac University. “Having said that, in the short term, if this situation continues for more than a few days, if it continues for more than a week…we will definitely see prices for many goods and services go up. It’s easy to see that there has been a short-term spike during the strike, which has significantly pushed up the prices of certain goods. ”
Ball expects the main sectors affected will be food and autos, both of which have exerted disinflationary or deflationary pressures in recent months. Small businesses near ports could also be negatively affected, he added.
“If that goes on for a week or two, you’re going to find companies that are actually experiencing shortages. So, to prevent widespread shortages of those products, companies absolutely have to raise prices. “I guess so,” Ball said.
It all happened at the wrong time for the Federal Reserve. Last month, the central bank cut its benchmark borrowing rate by 0.5 percentage points, signaling further rate cuts are possible as it gains confidence that inflation is easing.
But this latest strike could complicate decision-making. The October jobs report, the last figure the Fed will release before its Nov. 6-7 policy meeting, will be affected by both strike-related layoffs and the effects of Hurricane Helen.
This coincides with the upcoming presidential election on November 5th, and the economy will be an extremely important issue.
“This just completely complicates everything the Fed is trying to do because they don’t know what the economy is actually doing,” Jim Bianco, head of Bianco Research, told CNBC. Ta.
Federal Reserve Chairman Jerome Powell said on Monday that he expects the central bank to cut interest rates by another 0.5 percentage point by the end of the year, but at a slightly slower pace than markets had expected.
Correction: The International Longshoremen’s Association called for the closure of major container and cargo ports in the East. The organization name was incorrectly listed in previous versions.