Port of Miami dockworkers strike near the port entrance and demand a new labor contract, October 1, 2024 in Miami, Florida.
Giorgio Viera | Afp | Getty Photos
A strike hitting ports along the Eastern and Gulf coasts could raise prices for food, vehicles and many other consumer goods, but is expected to have only modest and broader consequences, unless it doesn’t last too long.
Makers of everything from trucks to toys to artificial Christmas trees are facing hurdles now that the International Longshore Affiliation has called for a shutdown of the East’s major container and cargo ports.
From a macro level, the affect will depend on the duration. President Joe Biden, under powers granted by the Taft-Hartley Act, could step in and order an 80-day cooling-off period that would at least temporarily end the shutdown, although there is no indication he will do so .
This will leave hope in the hands of union negotiators and the American Maritime Alliance that the strike will not drag on and cause greater hardship to the U.S. economy as the crucial holiday season approaches. end of year.
“The union movement of port workers along the East Coast and Gulf of the United States will have a modest impact on GDP,” said Joseph Brusuelas, chief economist at RSM, who estimated the weekly impact at a little more than 0.1 percentage point of gross domestic product and 4.3 dollars. billions of {dollars} in lost imports and exports.
“Given that the U.S. economy is currently on a 3% growth trajectory, we do not expect the strike to derail the trajectory of the national economy or present a risk of a premature and unnecessary end to the current economic expansion,” he added.
Indeed, the US economy, estimated at $29 trillion, has avoided many landmines and has been in growth mode for two years. The Atlanta Federal Reserve grew 2.5% in the third quarter boosted by an acceleration in net exports.
A prolonged work stoppage could, however, threaten this situation.
Impacted areas
Major industries facing challenges include coal, energy and agricultural products. Typically, for each day of strike action, it takes almost a week for ports to operate at normal levels.
“The costs of the strike would increase over time as delays in exports and imports increase,” Andrew Hollenhorst, an economist at Citigroup, said in a consumer notice. “Perishable products like imported fresh fruits could be the first to face a shortage. If the strike extends beyond a few days, shortages of certain manufacturing inputs could potentially slow production and increase prices of manufactured goods like vehicles. »
There are, however, potential buffers to the damage a strike could cause.
On the one hand, West Coast ports are expected to take on some of the freight traffic that would normally go to Eastern ports. In addition, some companies anticipated the shutdown and set up shares in advance.
Additionally, pressure on supply chains, greatly exacerbated during the pandemic, has largely eased and is actually lower than pre-Covid levels, a study shows. New York Fed measure.
“We believe fears about potential economic impacts are overblown,” wrote Bradley Saunders, North America economist at Capital Economics. “Frequent shocks to supply chains in recent years have made producers more aware of the risks associated with low shares. It is therefore possible that companies will have taken precautionary measures in the event of a strike – not least because this possibility has been touted by the ILA. for months. »
Saunders added that he thinks there is a strong possibility that the White House will enter the fray and invoke a period of reflection, despite the administration’s strongly pro-union leanings.
“There is little chance the administration will risk jeopardizing its recent economic successes less than two months before a hotly contested election,” he said.
Inflationary threat
In the meantime, there are many other issues that could complicate matters.
Supply chain problems could exacerbate inflation as price pressures have eased from their mid-2022 peak that sent the annual rate to its highest level in more than 40 years. years. The maritime association is proposing increases close to 50%, another factor that could reignite inflation just as wage pressures have also fallen. The union wants bigger raises as well as guarantees against automation.
“It’s clearly transitional. They will find a solution,” said Christopher Ball, an economics professor at Quinnipiac University. “That being said, in the short term, if this lasts more than a few days, if it lasts more than a week… it will certainly drive up the prices of a lot of these goods and services now. This could drive up prices. short-term spikes during the strike, and I can easily see that this caused the prices of some products to rise significantly.
Ball expects the main areas affected to be food and vehicles, both of which have exerted disinflationary or deflationary pressures in recent months. Small businesses located near ports could also face negative impacts, he added.
“If this goes on for a week or two, you’re running into companies that are experiencing real shortages and, yes, they will absolutely have to raise their prices just to avoid a widespread shortage of these products,” Ball said.
All of this comes at an inopportune time for the Federal Reserve. The central bank last month cut its benchmark borrowing rate by half a percentage point and indicated more easing was to come as it gains confidence that inflation is slowing.
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 influenced by both strike-related layoffs as well as those caused by Hurricane Helen.
This coincides with the imminence of a presidential election on November 5 and with the economy as a central issue.
“It would completely complicate everything the Fed is trying to do because they don’t understand how the economy is actually performing,” Jim Bianco, director of Bianco Research, told CNBC.
Fed Chairman Jerome Powell said Monday that he expects the Fed to cut rates by another half-percentage point by the end of the year, a bit slower than what the markets had predicted.
