On October 1, 2024, in Miami, Florida, dock workers at the Port of Miami went on strike near the port entrance, demanding a new labor contract.
George Vieira | AFP | Getty Images
Strikes at Eastern and Gulf Coast ports are likely to push up prices for food, cars and many other consumer goods, but are expected to have only modest broader impacts — as long as they don’t last too long.
Manufacturers of everything from trucks to toys to artificial Christmas trees are facing obstacles as the International Longshoremen’s Association announces shutdowns at major eastern container and freight ports.
From a macro perspective, the impact will depend on duration. Under powers granted by the Taft-Hartley Act, President Joe Biden could step in and order an 80-day cooling-off period that would at least temporarily halt the shutdown, although there is little sign he will do so.
That will give union and U.S. Maritime Alliance negotiators hope that the strike will not drag on and cause greater hardship for the U.S. economy heading into the critical holiday shipping season.
“The strike action by port workers in the Eastern U.S. and Gulf Coast will have some impact on GDP,” said Joseph Brusuelas, chief economist at RSM. He expects the weekly impact to be 25% of domestic production. A little over 0.1 percentage point of GDP, $4.3.
He added: “Given that the U.S. economy is currently on a 3% growth path, we do not expect the strike to derail the trajectory of the domestic economy or pose the risk of ending the current economic expansion prematurely and unnecessarily.”
In fact, the $29 trillion U.S. economy has dodged multiple landmines and has been in growth mode for the past two years. The Federal Reserve Bank of Atlanta is tracking Growth in the third quarter was 3.1%driven by an acceleration in net exports.
However, a prolonged shutdown could threaten this.
Affected areas
Some of the major industries facing challenges include coal, energy and agricultural products. A rule of thumb is that for each strike day, it takes nearly a week for the port to return to normal operations.
“The cost of the strike will continue to rise over time as import and export backlogs build,” Citigroup economist Andrew Hollenhorst said in a client note. “Imported perishables such as fresh fruit Products may initially experience supply shortages. If the strike lasts for more than a few days, shortages of certain production inputs could eventually slow production and raise prices for manufactured goods such as cars.”
However, there are potential buffers against the damage a strike could cause.
For one, West Coast ports are expected to take on some of the cargo traffic that would normally go to Eastern ports. In addition, some companies have already anticipated production shutdowns and stocked up on goods in advance.
Additionally, supply chain pressures that intensified dramatically during the pandemic have largely eased and are actually below pre-COVID levels, according to one supplier. New York Fed Measures.
“We believe concerns about the potential economic impact are overdone,” wrote Bradley Saunders, North America economist at Capital Economics. “Frequent supply chain shocks in recent years have left producers Greater awareness of the risk of running out of stocks means businesses are likely to take precautions in the event of a strike – not least because the International Labor Association (ILA) has touted the possibility.
Sanders added that he believed there was a good chance the White House would intervene in the dispute and initiate a cooling-off period, despite the administration’s strong support for unions.
“With less than two months to go before a hotly contested election, the government is unlikely to risk jeopardizing its recent economic success,” he said.
Threat of inflation
At the same time, there are many other issues that may complicate matters.
Hurdles in supply chains could fuel inflation Price pressures have cooled from their peak in mid-2022, and annual interest rates have risen to their highest levels in more than 40 years. Maritime associations are proposing a pay rise of nearly 50%, another factor that could reignite inflation, while wage pressures have receded. Unions are seeking greater growth and guarantees against automation.
“This is obviously temporary. They’re going to have some solutions,” said Christopher Ball, an economics professor at Quinnipiac University. “Having said that, in the short term, if this continues for more than a few days, if it lasts for more than a week… it’s definitely going to push up prices for a lot of goods and services right now. That could lead to price spikes in the short term during the strike. , I could easily see a huge price increase on certain items.
Ball expects the main areas affected to be food and automobiles, both of which have exerted deflationary pressures in recent months. Small businesses near the port may also be adversely affected, he added.
“If it goes on for a week or two, you’re going to have businesses with real shortages, and yes, they absolutely have to raise their prices to prevent a general shortage of these items,” Ball said.
For the Fed, this couldn’t come at a worse time. The central bank last month cut its benchmark borrowing rate by half a percentage point and said it would adopt more easing policies as inflation is slowing.
Strikes, however, can complicate decision-making. The October jobs report, the last one released before the Fed’s policy meeting on Nov. 6-7, will be affected by strike-related layoffs as well as those caused by Hurricane Helene.
This all comes with the upcoming presidential election on November 5, with the economy being a key issue.
“It just completely complicates everything the Fed is trying to do because they don’t understand how the economy is actually performing,” Jim Bianco, head of Bianco Research, told CNBC.
Federal Reserve Chairman Jerome Powell said on Monday that he expects the Fed to lower interest rates by another half percentage point before the end of the year, slightly slower than market expectations.
About The Author
