The dockworkers’ strike has entered its third day leaving long lines of container ships queued up outside major U.S. ports, and a speedy resolution looks unlikely, as no negotiations have been scheduled between the Longshoremen’s Association and employers.
Against the backdrop, analysts at Morgan Stanley weighed in on how the strike would impact the economy and markets.
Why Short-lived Strike Won’t Hurt Economy: If the strike continues for a long period, it could hurt economic growth and boost inflation, said economist Diego Anzoategui. Notwithstanding the pause in shipping service and elevated shipping rates, transportation implications will be limited unless there is a prolonged work stoppage, he said.
The expectations are based on the assumption that some retailers may have already pulled forward ordering ahead of the peak season, and the truck market, along with other ports, should be able to absorb spillover volumes in the short term, he added.
The economist, however, warned that the economic impact could be meaningful if the strike extends over time. The East Coast and Gulf ports handle about 30% of good imports and exports, he said.
How Impact Seeps Down? Anzoategui said that the economic shock could seep sown through two channels, namely local production disruption and a reduction in exports. The strike could cripple local production due to intermediate or capital goods supply disruptions, he said. Base metals, machinery, plastics and rubber are among the top 10 commodities imported by water and the share of the East Coast and Gulf for the import of these commodities is above 60%, he added.
The economist also flagged a hit to exports as the East Coast and Gulf ports channel account for 84% of exports by water. Exports of energy, chemicals, plastics, autos, and machinery producers might be affected by the strike, he said.
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Which Items Get Biggest Hit? Auto, furniture, apparel and electronics are the top final goods imported into the East and Gulf ports, according to Anzoategui. These items account for 13% of the core price consumption expenditure index, he said. Although food is not among the top 10 import items in terms of value for the ports under strike, about 50% of food imports to the U.S. come by ports and therefore food prices could also climb, he added.
Food and beverages have typically lower inventory-to-sales ratios and therefore these could see first price increases, the economist said. Apparels, having the highest inventory levels, and autos, electronics and furniture, typically having above average inventory-to-sales ratio, would be better positioned, he said.
Impact On Jobs: If the strike lasts for a week, the measurement of non-farm payrolls will be impacted, Anzoategui said. That said, the economist expects the Federal Reserve to look through short-run fluctuations caused by strikes. Also, if the strike is short-lived, any drag on October’s non-farm payrolls print would likely be followed by payback in November, he added.
Anzoategui does not expect the strike to impact weekly initial jobless claims data unless workers are let go due to the strike. Strikers are considered employed in the household survey and are not eligible to receive unemployment benefits if they are not fired, he added.
Optimistic Of Resolution: Similar events in the recent past haven’t been prolonged as there are economic incentives for the involved parties to seek resolution, said Anzoategui. He noted that the 2022 west coast port strike was resolved via a negotiating deadline extension.
The government also has authorities under the 1947 Taft-Hartley Art to force a resolution, he added.
The SPDR S&P 500 ETF Trust (NYSE:SPY), an exchange-traded fund that tracks the performance of the S&P 500 Index, ended Wednesday’s session up 0.04% at $568.86, according to Benzinga Pro data.
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