Quick Take: US Dockers Strike to Have Limited Macro Impact

By Dominique Dwor-Frecaut

Summary

• US dockworkers in ports accounting for 60% of maritime freight have gone on strike.
• The impact on growth and inflation is likely to be limited as any deep disruption would likely see the Biden administration intervene.

Market Implications

• I still expect two more 25bp Federal Funds Rate (FFR) cuts in 2024.

Dockworkers on Strike

On 1 October, 45,000 dockworkers at East and Gulf coast ports went on strike, effectively shutting the ports. They demand a 50% wage increase over six years and benefits improvements. Employers are offering a 40% pay increase.

East and Gulf coast ports handle about 60% of total US maritime freight (Table 1).

By contrast with last year’s negotiations between West coast ports and dockworkers, when the administration intervened to enforce a settlement, this time the proximity of the elections has made it reluctant to do so. Last year, dockworkers on the West coast won a 32% wage increase over 6 years with onetime payment for work performed during the pandemic.

Strike Impact on Inflation and Growth to Be Limited

If the strike continues it is likely to cause industrial inputs and consumer goods shortages.?Inventories-to-sales ratios in the manufacturing and the wholesale sectors are back to pre-pandemic levels (Chart 1). However, retail inventories to sales ratios remain well below pre-pandemic levels (Chart 2).

Historically, a decline in retail inventories to sales ratios has not been associated with an acceleration in goods price inflation, except during the pandemic when the ratio collapsed (Chart 3). Such a collapse is unlikely this time as businesses are likely to re-route their orders.? Also, the government would likely intervene should goods scarcity reach pandemic-like intensity.

Furthermore, historically shipping costs have not significantly impacted goods prices (Chart 4).

And should a goods shortage impact growth, this would likely be temporary as any deep economic disruption the strike causes would likely see the administration intervene.

In any event, we can monitor the strike’s impact partly through port congestion indicators (Chart 5).

Market Consequences

I expect the strike to have limited economic and market impact and therefore still expect two more 25bp FFR cuts in 2024.

Dominique Dwor-Frecaut?is a macro strategist based in Southern California. She has worked on EM and DMs at hedge funds, on the sell side, the NY Fed , the IMF and the World Bank. She publishes the blog Macro Sis that discusses the drivers of macro returns.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)