U.S. Dockworker Strike (October 2024)

Dockworker Strike Adds to List of Disruptions for U.S. Economic Activity in The Fourth Quarter

• Thousands of dockworkers at several East and Gulf coast ports are on strike. Combined with other disruptions – i.e., Hurricane Helene and striking Boeing workers on the Pacific Northwest – these one-off events are poised to take some wind out of the economy's sails in the fourth quarter. 

What's happening and why? 

• The International Longshoremen's Association (ILA), the union representing 45,000 workers at three dozen ports on the East and Gulf coast, began a strike after a deal with the United States Maritime Alliance (USMX) wasn't reached before the existing contract expired on September 30. This is the union's first strike since 1977. 
  • According to USMX, as of October 1st, the strike was expected to involve 25,000 workers and affect 14 major ports. 

Why are dockworkers striking? 

• The ILA union is seeking a 77% wage increase over six years – raising the base hourly rate for affected workers from $39 currently to $69 – as a condition to sit down to talks with maritime employers.
  • A last-ditch offer stipulating a 50% increase over six years (improved from 40%) was not accepted.
• The dispute is not only about pay. Another thorny issue is "automation" at the ports.
  • The ILA is strongly opposed to automation measures on the grounds of job security for its members. The union is advocating for a ban on automation. On the other hand, along with its 50% pay increase offer, the alliance (USMX) also pledged to keep limits on automation as per the old contract. 

Port strike adds to the list of disruptions in Q4

• The port strike is the latest of a string of disruptive developments that will potentially hit the U.S. economy in the fourth quarter.  
  
  • First is the 30,000-strong Boeing workers' strike in the Pacific Northwest, which is now in its third week. 
    • The strike has halted production of Boeing’s best-selling airplanes and is beginning to take a toll on related suppliers.
  • Second is the devastation brought on by Hurricane Helene.
    
    • Besides the tragic loss of life, Hurricane Helene has left behind a long path of destruction in the Southeast, with affected states including Florida, Georgia and the Carolinas. 
    • Damage to property and businesses, and a resulting halt to many business activities will weigh on growth in the near-term, before reconstruction efforts and the eventual resumption of regular activities lead to a rebound in growth. 
      
      • The reference period for employment surveys is typically the week that includes the 12th of the month (here). Hurricane Helene's impact will feature into the employment numbers starting in October, with widespread job losses expected in affected areas. On the other hand, the impact from the strikes will depend on whether or not they continue through the reference period. Together, these occurrences can distort signals coming out of the monthly jobs report – a key piece of information that the Fed will consult as it makes its next interest rate decision in early November. 

If protracted, the port strike could pack a heavy punch on Q4 growth 

• East and Gulf ports handle roughly 60% of the country's cargo imports. 
  
  • A large swathe of product categories, including pharmaceuticals, autos, and food, among others, pass through these ports. 
• From an industry perspective, first in the crosshairs of the dockworker strike is transportation sector. With activities at the affected ports coming to a halt, truck drivers picking up and delivering cargo to and from these ports, and the supporting warehousing system, will run on a much lighter schedule, feeling the pinch of reduced activity rather quickly.  
• If the strike is prolonged, retail and manufacturing are two other key industries that will be negatively impacted, with a shortage of goods or delays due to the need to re-route shipments weighing on both. 
  
  • A protracted strike leading to dwindling inventory levels could lead to stronger price growth for affected product categories, potentially threatening to undo some of the progress on the inflation front.  In turn, renewed goods price inflation could factor into the Fed's calculus as it considers future policy moves. 
    • Perishable goods such as fruits are at an increased risk from trade disruptions from the strike. As a result, prices for these products could be first on the list to see an increase. 
• Fortunately, businesses have been anticipating the strike for some time. Imports of goods into the U.S. have outstripped growth of private sales to domestic purchasers in three of the last four quarters, which has helped to push inventory levels higher. This will serve as a buffer for both retailers and manufacturers over the near-term, helping to limit any potential knock-on effects to supply chains.
• Our current growth tracking has GDP expanding by a still-healthy 2.0% annualized pace in the third quarter. But the work stoppages across East and Gulf ports, and Boeing, along with the recent landfall of Hurricane Helene are all factors that will distort the near-term growth outlook. 
  • We estimate that the port strike alone will shave 0.1 percentage points from Q4 growth for every week it persists, with the impact scaled significantly higher after several weeks as inventories dwindle and the knock-on effects to supply chains reverberate through the global economy. Boeing's hit to growth is much smaller, with the weekly impact roughly a tenth of that of the port strike. 
  • Conversely, national disasters tend to boost economic growth, as any "lost activity" is typically more than made up for in the subsequent clean-up and rebuilding efforts – though this is typically spread over several quarters. Our Quarterly Forecast shows GDP expanding by 1.6% in Q4. Assuming a relatively quick resolution to the port strike, Q4 growth could still expand somewhere in the 1.5-2% range. Anything longer would pose considerable downside risk to our near-term tracking. 

  Can the Government intervene, and will it choose to do so?

• U.S. presidents have the ability to intervene in labor disputes that threaten national security or safety by imposing an 80-day cooling-off period under the federal Taft-Hartley Act. This would force workers back on the job while negotiations continue. 
• That said, whether the government chooses to intervene with the above or not, remains to be seen. 
  
  • So far, the Biden administration has yet to intervene, with the President recently stating that he does not intend to use the Taft-Hartley Act. For now, the administration is trying to influence an agreement without direct involvement, with President Biden urging port operators to increase wages for workers. 
  • However, when push comes to shove, given the major impact a prolonged strike could have on the U.S. economy, there would be few options left on the table. 
    
    • The government has flexed its powers in other ways in the past. For instance, in late-2022, the Biden administration put in place legislation to avoid a 'potential' rail strike.  

Concluding remarks

• The dockworker strike affecting East and Gulf coast ports is a major development given the significance of these ports to U.S. trade, but also the number of workers involved. 
• A short-lived strike of a few days could be just another small bump on the road, having a minimal impact on U.S. economic momentum. 
• However, a prolonged strike spanning several weeks could be a different story. The longer the strike persists, the more amplified the negative impacts on growth (and potentially pricing patterns) would be – something that could significantly complicate the Fed's efforts to achieve a soft landing.  

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