On October 1st, dockworkers on the East and Gulf Coasts of the U.S. went on strike. This marks the first strike on the East Coast since 1977. This labor action stems from a disagreement between the United States Maritime Alliance, representing U.S. ports, and the International Longshoremen's Association, a labor union, over stagnant wages and automation concerns. The strike affects 36 ports and roughly 45,000 longshoremen.

With the U.S. economy softer compared to a year ago and inflation near a comfortable level, investors worry the strike could impact the economic outlook. However, these concerns appear to be somewhat overstated.

• Impacts on GDP should be limited, especially for durable goods. The strike will affect imports and exports of both durable and nondurable goods, with the level of impact fluctuating based on these variables. Nondurable goods, such as agricultural products, may spoil, leading to a complete loss from an export standpoint and potentially disrupting manufacturing processes if these goods are used as inputs. In contrast, durable goods for export might temporarily accumulate in inventories, altering GDP composition without significantly harming growth. According to Oxford Economics, the strike could reduce U.S. economic activity by $4.5 billion to $7.5 billion per week. Given the size of the U.S. economy, which is around $30 trillion, this would result in a minor reduction in quarterly growth.
• Inflation impacts should be modest and short-lived. Inflation is a concern because goods prices could increase temporarily due to scarcity or increased shipping costs. However, global shipping networks have proven to be resilient recently against weather disruptions and geopolitical conflicts. In fact, industry container data show a modest shift in trade to West Coast ports in anticipation of the strike, mitigating some of the impact. Moreover, according to estimates, 70% of U.S. retailers have built up inventories ahead of the upcoming holiday season, which removes a potential source of aggravation. 

Historical examples, such as the 2002 and 2015 West Coast port strikes, show that although the shutdowns were short-lived, they had meaningful impacts on exports. However, their economic effects varied: in 2015, inventory building more than offset the decline in exports, resulting in higher growth during the affected quarter. In 2002, by contrast, inventories did not offset the decline in exports, and while growth was positive in the affected quarter, it was lower in the surrounding periods. Interestingly, President Bush ended the 2002 strike by invoking the Taft-Hartley Act, implementing an 80-day “cool down” period due to “national health and safety” reasons. While President Biden has not indicated plans to intervene, there are measures available if the situation worsens.

Ultimately, the strike is unlikely to negatively impact the U.S. economy unless it continues for a very extended period without intervention. Investors worried about interest rates should note that the Fed would likely see any impact from the strikes as isolated and not adjust its decisions due to its current focus on employment side risks. Therefore, key market dynamics, such as the rotation in U.S. equities and falling rates positively impacting short-to-intermediate duration fixed income, should remain intact.

^{09qn240210131932}