Dock workers in the U.S. are getting ready to go on strike at ports on the East and Gulf sides on October 1. But a short strike probably wouldn’t make prices go up for consumer items.
The USMX, which is made up of port groups, container carriers, and employers, has not been able to come to an agreement on a new master contract with the International Longshoremen’s Association (ILA), which speaks for 85,000 longshore workers. The current deal ends on September 30 at midnight. After that, the ILA is going to go on strike at the 36 places where union members work for 14 port officials along the East Coast and Gulf Coast.
Since about 40% of all U.S. container traffic goes through the ports in question, a possible strike would probably have a small effect on the gross domestic product. Workers in the union have been told that they will still move military goods and handle cruise ships with passengers at Atlantic and Gulf ports during a strike. Oxford Economics says that a strike that lasts for a week could cost the U.S. economy between $4.5 billion and $7.5 billion.
Michael Pearce, Oxford’s deputy chief U.S. economist, said Friday that there is “very little chance” that a dockworker strike will cause prices to rise again on a national level. According to Pearce, things are very different now compared to a few years ago when it comes to demand and supplies. A few years ago, things were very different as well.
When the COVID-19 pandemic hit and messed up supply lines, there weren’t many items in stock. As a result of higher costs, companies were able to raise prices, which allowed their profit margins to grow, Pearce said. The consumer price index showed that inflation peaked at about 9% in June 2022. As of August 2022, it had dropped to 2.5%.
Prices can’t be changed as much by stores and producers as they could in 2020 and 2021 because it costs a lot to borrow money and jobs are becoming less available. Demand isn’t too high anymore, and people are much more careful about how much they spend. Pearce said that the dockworker strike might have a small effect on customer prices but a big effect on producer prices.
Pearce said that the global background also supports a deflationary situation because demand is not very strong around the world. Even though the People’s Bank of China cut interest rates last week, demand in China and Europe is still not very strong.
ILA strikes that last a long time, on the other hand, could change the equation for inflation and start supply-driven price growth again, says Roukaya Ibrahim, a strategist at BCA Research. Ibrahim says that a second wave of inflation isn’t what BCA thinks will happen right now.
Prices haven’t changed much because of recent worker strikes. According to research from the Federal Reserve, the United Auto Workers (UAW) strike against General Motors (GM 1.46%), Ford, and Stellantis (STLA 2.69%) last year, which began in September and lasted for six weeks, slowed fourth-quarter GDP growth by 0.5 percentage points and all-year growth by 0.1 percentage points.
Fed experts found that the UAW strike didn’t have much of an effect on prices because inventory levels didn’t drop during the strike.
In contrast to the UAW walkout, the federal government can end a dockworkers’ strike. There have been no public signs that the Biden administration has stepped into the union talks, but it could. The Taft-Hartley Act gives the federal government the power to step into labor disputes when national health or safety is at risk. The last time this clause was used was in 2002, after a 10-day strike at ports on the West Coast.
A possible dockworker strike probably won’t have much of an effect on inflation, but it might have an effect on the other part of the Federal Reserve’s job, which is to keep employment at full capacity. October job numbers could be wrong if tens of thousands of dockworkers don’t show up for work.
Oxford thinks that the strike could directly affect about 45,000 port workers, but it could also have effects on other jobs that could temporarily lay off up to 105,000 workers. Pearce said, “What worries me the most is the noise this might make for the next few job reports.”
Fed officials should be able to handle any short-term weakness, but if the job market gets shaky, it could make it more likely that interest rates will be cut by another 0.5 percentage points in November.
