The recent strikes affecting ports on the East Coast and Gulf Coast have the potential to significantly increase prices for a variety of consumer goods like food and automobiles. However, experts predict that unless the strikes persist for an extended period, the overall economic impact will remain limited.
Companies involved in manufacturing across numerous sectors—including trucks, toys, and even artificial Christmas trees—are dealing with disruptions as the International Longshoremen’s Association (ILA) has initiated closures at major shipping ports on the East Coast.
On a broader scale, the duration of the strikes plays a crucial role in their economic ramifications. While President Biden holds the power to invoke the Taft-Hartley Act to implement an 80-day cooling-off period and momentarily halt the strike, indications suggest that he might not opt for such action.
This uncertainty leaves union representatives and the American Maritime Alliance optimistic that a swift resolution will prevent a prolonged strike, especially as the vital holiday season approaches.
Joseph Brusuelas, chief economist at RSM, stated, “Actions taken by longshoremen along the U.S. East Coast and Gulf Coast are likely to have a minimal effect on GDP.” He projected a weekly impact that would translate to just over a 0.1 percentage point increase in the GDP, with the total loss in imports and exports estimated at $4.3 billion.
Brusuelas further noted, “Currently, with the U.S. economy tracking a growth rate of around 3%, we do not foresee the strike jeopardizing the economic expansion or triggering an early conclusion to the current growth period.”
The $29 trillion U.S. economy has managed to navigate various challenges while maintaining a growth trend over the last two years. The Atlanta Fed has forecasted a growth rate of 2.5% for the third quarter, fueled by a rise in net exports.
However, an extended strike could threaten this stability.
Affected Industries
Industries experiencing challenges due to these strikes include coal, energy, and agriculture. A general rule indicates that for every day of a strike, it may take up to a week for the ports to resume normal operations.
According to Citigroup economist Andrew Hollenhorst, “The costs associated with a strike incrementally rise as the balance of imports and exports shifts.” Perishable items, such as fresh imported fruit, may be the first to see supply shortages. A continuation of the strike beyond a few days could delay production of certain goods, leading to increased prices.
Nonetheless, there are buffers that could mitigate the potential impact of the strikes. For instance, West Coast ports could pick up some of the cargo workload typically managed by Eastern ports. Additionally, many companies have stockpiled supplies in anticipation of potential disruptions.
Moreover, reports from the New York Fed indicate that pressures on supply chains have significantly decreased, even falling below pre-pandemic levels.
According to Bradley Saunders, a North American economist at Capital Economics, concerns regarding the economic fallout are perhaps exaggerated. “In recent years, ongoing interruptions to supply chains have made manufacturers more aware of potential stock shortages. Consequently, many businesses are likely to have prepared for the possibility of a strike, especially as the ILA has been promoting the idea for months.
Despite the current administration’s supportive stance towards unions, Saunders believes it is likely the White House will intervene to initiate a cooling period. “With the presidential election less than two months away, there is minimal risk that the administration will compromise its recent economic achievements,” he remarked.
Inflation Concerns
Various other factors could complicate the scenario. Just when inflationary pressures appeared to be subsiding from their mid-2022 peak—when annual rates reached levels not seen in more than 40 years—supply chain issues may reignite inflation. The Maritime Association has suggested pay increases nearing 50%, which could add to inflationary concerns even as wage pressures begin to ease. Unions demand larger pay raises along with protections against automation.
Christopher Ball, an economics professor at Quinnipiac University, stated, “This situation is likely temporary, and some resolution will be reached.” However, he added, “If the strike extends beyond a few days, and particularly beyond a week, we can expect to see increased prices on a range of goods and services.” Ball predicts that food and automobile sectors, which have shown signs of disinflation, are likely to be impacted the most. Local businesses near ports are also at risk of being adversely affected.
He continued, “Should the situation linger for a week or two, we could see companies facing shortages. To avoid widespread scarcity, businesses will be forced to increase prices.”
This situation unfolds at a precarious time for the Federal Reserve, which recently lowered its benchmark borrowing rate by 0.5 percentage points, hinting at further cuts as they seem confident inflation is declining.
However, these latest strikes may complicate decision-making for the Fed. The October jobs report, which will be the last data released before the Fed’s November 6-7 policy meeting, will reflect the effects of both strike-related layoffs and the repercussions of Hurricane Helen.
The timing aligns closely with the upcoming presidential election on November 5, where economic issues may play a critical role.
Jim Bianco, head of Bianco Research, remarked, “This introduces significant uncertainty for the Fed as they assess the economy’s real state.”
Federal Reserve Chairman Jerome Powell indicated on Monday that he expects another 0.5 percentage point rate cut by year-end, albeit at a more gradual pace than previously anticipated.
Correction: The International Longshoremen’s Association was misidentified in earlier articles; it has indeed called for the closure of major cargo ports in the East.
