Port of Miami dock workers strike near the port entrance and demand a new labor contract on October 1, 2024 in Miami, Florida.
Giorgio Viera | Afp | Getty Images
A strike hitting ports along the East and Gulf coasts could raise the prices of food, cars and a host of other consumer goods, but is expected to have only modest broader effects — as long as it doesn’t last long.
Manufacturers of everything from trucks to toys to artificial Christmas trees are facing hurdles now that the International Longshoremen’s Association has called for a halt to the East’s major container and cargo ports.
From a macroeconomic perspective, the impact will depend on duration. President Joe Biden, under the powers granted by the Taft-Hartley Act, could step in and order an 80-day cooling-off period that would at least temporarily halt the shutdown, though there is little indication that he will do so.
That will leave hopes in the hands of negotiators for the union and the U.S. Shipping Alliance that the strike will not last and cause greater hardship for a U.S. economy heading into the critical holiday shipping season.
“Labor action by dockworkers along the East Coast and Gulf of the United States will deliver a modest hit to GDP,” said RSM chief economist Joseph Bruszuelas, who put the weekly impact at just over 0.1 percent. unit of gross domestic product and $4.3 billion in lost imports and exports.
“Given that the US economy is currently on a 3% growth trajectory, we do not expect the strike to derail the trajectory of the domestic economy or pose a risk of an early and unnecessary end to the current economic expansion,” he added.
Indeed, the $29 trillion US economy has avoided many landmines and has been in growth mode for the past two years. The Federal Reserve Bank of Atlanta is watching growth of 2.5% in the third quarterboosted by the acceleration of net exports.
A prolonged work stoppage, however, could threaten that.
Injured areas
Some of the main industries facing challenges include coal, energy and agricultural products. A rule of thumb is that for every day of strike, it takes almost a week for the ports to operate at normal levels.
“Strike costs will escalate over time as export and import delays increase,” Citigroup economist Andrew Hollenhorst said in a client note. “Perishable products such as imported fresh fruit may be the first to experience shortages. If the strike extends beyond a few days, shortages of certain production inputs could eventually slow production and increase prices for industrial products such as the cars.”
However, there are potential safeguards against the damage a strike could cause.
First, West Coast ports are expected to take on some of the freight that would normally go to Eastern ports. Also, some companies anticipated the disruption and had stocked up earlier.
In addition, pressure on supply chains, which worsened sharply during the pandemic, has largely eased and is actually below pre-Covid levels, according to New York Fed measure.
“We think fears around the potential economic impact are overblown,” wrote Bradley Saunders, North America economist at Capital Economics. “Frequent shocks to supply chains in recent years have left producers more attuned to the risks of running out of low stocks. It is therefore likely that companies will have taken precautionary measures in the event of a strike – not least because the possibility has been touted by the ILA for months ».
Sanders added that he believed there was a good chance the White House would step in and invoke a cooling-off period, despite the administration’s strong pro-union leanings.
“There is little chance that the government will risk its recent economic successes less than two months before a tough election,” he said.
Inflationary threat
In the meantime, there are many other issues that could complicate matters.
Supply chain disruptions could worsen inflation as seen Price pressures eased from the mid-2022 peak that pushed the annual rate to its highest level in more than 40 years. The shipping union is proposing increases approaching 50%, another factor that could reignite inflation as wage pressures have also eased. The union is seeking bigger raises plus guarantees against automation.
“This is clearly temporary. They will have some solution,” said Christopher Ball, an economics professor at Quinnipiac University. “That being said, in the short term, if it lasts more than a few days, if it lasts more than a week … that’s certainly going to drive up the prices of a lot of these goods and services now. It could cause price spikes in the short term during the strike, and I can easily see the prices of some goods going up a lot.”
Ball expects the main sectors to be affected will be food and vehicles, both of which have exerted either deflationary or deflationary pressures in recent months. Small businesses near ports could also feel adversely affected, he added.
“If a week or two goes by, you’re going to run into businesses that have real shortages and, yes, they’re definitely going to have to raise those prices just to prevent major shortages of those goods,” Ball said.
All of this comes at an inopportune time for the Federal Reserve. The central bank last month cut its key lending rate by half a percentage point and signaled a further cut is on the way as it gains confidence that inflation is easing.
However, the strike could complicate decision-making. The October jobs report, which is the last the Fed will see before its Nov. 6-7 policy meeting, will be affected by both the strike-affected layoffs and those from Hurricane Helene .
It coincides with the upcoming presidential election on November 5, and the economy as a key issue.
“This would completely complicate everything the Fed is trying to do because they don’t know what the economy is actually performing,” Jim Bianco, head of Bianco Research, told CNBC.
Fed Chairman Jerome Powell said on Monday he expects the central bank to cut interest rates by another half a percentage point by the end of the year, somewhat slower than markets expected.
Correction: The International Longshoremen’s Association called for a stop at the major container and cargo ports of the East. An earlier version misstated the organization’s name.
