Key Takeaways
- International Longshoremen’s Association members walked out on 14 ports from New England to Texas this week, which could cost the U.S. economy up to $4.5 billion each day.
- The dockworker’s strike could close off ports that handle more than 68% of America’s imports.
- Increased shipping rates and transportation costs could reignite inflation and make the Fed rethink any more interest rate cuts.
The start of a strike by dockworkers in ports from New England to Texas could cost the U.S. economy up to $4.5 billion daily and reignite inflation.
An estimated 45,000 members of the International Longshoremen’s Association walked out of their jobs, seeking higher pay and labor protections against automation from their employers.
The 14 ports where the dockworkers walked out handle more than 68% of the country’s imports. The ensuing supply chain disruptions are expected to affect retailers relying on port delivery and could raise customer prices. But their economic effects could go even further.
The Longer the Strike Persists, The More It Will Cost
Economists differ in their estimates of how much the strike will cost the U.S. economy. According to a high-end estimate from JP Morgan, it could cost between $3.8 billion and $4.5 billion per day. Oxford Economics forecast the strike could reduce the country’s economic growth by an annualized 0.1% for every week it continues.
“The economic consequences of the strike will ratchet up the longer the strike persists.” Elise Burton, Moody’s Analytics.
It could last for a while. President Joe Biden has said he will not step into the fray despite Republican calls to invoke the Taft-Hartley Act.
“Collective bargaining is the best way for workers to get the pay and benefits they deserve,” Biden said in a statement Tuesday.
The Strike Could Reignite Inflation
The last port strike, in October 1977, lasted 44 days.
Similar to the current economic situation, inflation rates declined through the summer and early fall of that year. After three months of consistent inflation of 0.3%, the port strike helped month-over-month inflation jump to 0.5% in November 1977.
Over the past two years, the Federal Reserve has held its rates at a decades-high to tame inflation caused by COVID-19-related supply chain disruptions. The pandemic caused restrictions at borders and locked-up ports, making it harder for retailers and consumers to receive their products.
In August, the Fed’s preferred measure of inflation approached the central bankers’ annual goal of 2%. That progress could be in jeopardy if the strike has an impact similar to the 1977 work stoppage.
And That Could Spook the Federal Reserve
Because of the progress on inflation, the Federal Reserve cut its key federal funds rate for the first time since the pandemic in September.
Central bankers forecast they would continue cutting this year and into the next. However, some economists say the effects of the supply chain disruptions caused by the strikes could give the Fed pause.
“Elevated shipping rates, transportation expenses, and other cost increases would eventually flow into consumer prices,” said Matt Colyar, economist for Moody Analytics. “This would undermine progress on inflation and could make the Federal Reserve think twice about additional interest rate cuts in the near term.”
Futures traders currently place a better-than-60% chance on a 25-basis-point rate cut at the Fed’s next meeting in November, according to the CME Group’s FedWatch tool.