The dockworkers’ strike, now entering its third day, has created a backlog of container ships outside major U.S. ports, with no negotiations scheduled between the Longshoremen’s Association and employers. As the situation unfolds, Morgan Stanley analysts are closely examining the potential economic and market implications.
Diego Anzoategui, a Morgan Stanley economist, believes a short-term strike won’t have a significant impact on the economy. He argues that retailers may have preemptively increased orders ahead of the peak season, and the trucking industry and other ports can handle the overflow for the time being. However, he cautions that a prolonged strike could severely impact economic growth and fuel inflation.
The East Coast and Gulf ports handle a significant portion of U.S. imports and exports, accounting for about 30% of the total. Anzoategui highlights two main channels through which the strike could disrupt the economy: local production and exports.
Production Disruptions:
The strike could disrupt local production by hindering the supply of essential intermediate and capital goods. The East Coast and Gulf ports are vital for importing key commodities like base metals, machinery, plastics, and rubber, which account for over 60% of these imports.Export Challenges:
The strike could also impede exports, as these ports handle a substantial 84% of exports by water. Industries like energy, chemicals, plastics, autos, and machinery producers could be impacted by the strike.Impact on Specific Sectors:
Anzoategui identifies several sectors that could experience the most significant impact from the strike:*
Autos, furniture, apparel, and electronics:
These are major final goods imported through the East and Gulf ports and represent 13% of the core price consumption expenditure index.*
Food:
While food is not among the top 10 imported goods by value, a significant portion (50%) of U.S. food imports arrive by sea. The strike could lead to food price increases, especially for items with low inventory-to-sales ratios.Impact on Jobs:
A strike lasting a week could affect the non-farm payroll figures. However, Anzoategui anticipates that the Federal Reserve will disregard short-term fluctuations caused by strikes. He believes that any negative impact on October’s non-farm payroll numbers would likely be offset by a rebound in November if the strike is resolved quickly.Towards Resolution:
Anzoategui expresses optimism about a resolution, citing past similar events that were resolved promptly due to economic incentives for both parties. He points to the 2022 West Coast port strike that was resolved through a negotiating deadline extension. The government also possesses authority under the 1947 Taft-Hartley Act to force a resolution if necessary.The ongoing strike highlights the crucial role of ports in the U.S. economy. While the immediate impact may be limited, a prolonged strike could have significant consequences for businesses, consumers, and overall economic growth.
