Impact of UAW Strike on US Economy
The United Auto Workers (UAW) strike against the Big Three automakers—Ford, General Motors, and Stellantis—may have far-reaching effects on the U.S. economy, experts warn.
For the first time in its 88-year history, thousands of UAW-represented members picketed simultaneously against the three auto giants. The union says it will engage in “stand-up strikes,” with workers targeting specific factories as they demand higher pay and better compensation packages.
While the UAW strike might appear only to affect the auto sector, market analysts warn that it could have consequences for the national economy, depending on a multitude of factors.
UAW and the US Economy
S&P Global Market Intelligence analysts crunched the numbers and calculated how the UAW strike at the Detroit Three could weigh on U.S. GDP (gross domestic product) over the next 12 months.
In one simulation, a 15-week strike could trim the GDP growth rate by up to 2.17 percentage points in the fourth quarter.
“A lasting strike is looking highly probable. The current political and economic conditions increase the odds of a longer strike,” S&P Global analysts wrote in a report published on Sept. 18.
“The effects on third-quarter U.S. GDP growth are relatively small,” they added. “For the fourth quarter, the effects range from small positive contributions to GDP growth to large negative contributions, depending on the duration of the strike.”
Mark Zandi, chief economist at Moody’s Analytics, thinks the effects would be limited, with a potential six-week strike involving all 150,000 union members trimming roughly 0.2 percent from the fourth-quarter GDP growth rate.
But Mr. Zandi is hopeful that a strike won’t last for more than a few weeks, since there is room for compromise.
“The automakers are enjoying strong profits, and they need to share them. The workers and UAW need to embrace electric vehicles, and this ultimately may mean fewer UAW members,” he posted on the social network X, formerly known as Twitter. “If this is roughly how events play out, it will be a win–win for the companies and workers, and the economy will be no worse for the wear.
“However, if the strike lasts much longer, it will be a lose-lose, the economy will suffer, and both the manufacturers and UAW will be blamed.”
The Federal Reserve Bank of New York’s Nowcast for the October–December period estimates a 2.4 percent rate of expansion.
Incomes
For now, the strikes have been targeted. However, UAW President Shawn Fain has warned that a nationwide strike isn’t off the table and conditions could escalate if the automakers fail to accept the union’s demands.
Should the UAW leadership amplify strikes, a prolonged labor dispute could hurt workers’ wallets, says Gabriel Ehrlich, an economic forecaster at the University of Michigan.
An estimated $440 million worth of income could be lost nationally if all UAW members strike for two weeks. If autoworkers extend their strikes to eight weeks, more than $9 billion of income could be evaporated.
“A short strike would have a small impact, with limited spillovers into the aggregate economy, regardless of which automaker were targeted,” the report stated. “A prolonged strike or one involving multiple automakers, on the other hand, would cause a much larger disruption to the national and state economies.”
The UAW maintains a fund for striking workers of $500 a week in strike pay. If UAW and the Big Three are at an impasse and workers can’t make ends meet on $500 per week, local economies and businesses could suffer.
Meanwhile, Deutsche Bank analysts estimate that a work stoppage by all 150,000 UAW workers at the Big Three would cost each company as much as $500 million per week.
A Deepening Manufacturing Recession
The U.S. manufacturing sector has been stuck in a recession for all of 2023 as activity continues shrinking.
The S&P Global Manufacturing Purchasing Managers’ Index (PMI) has been stuck in contraction territory for nine of the past 10 months. The Institute for Supply Management’s (ISM) Manufacturing PMI also has contracted every month since November 2022.
“The health of the U.S. manufacturing sector took a sharp turn for the worse in June, adding to concerns over the economy potentially slipping into recession in the second half of the year,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “Factory output declined sharply at the end of the second quarter, according to the S&P Global PMI, dropping at one of the fastest rates seen over the past 13 years.”
James Knightley, chief economist at ING, thinks the key story for manufacturing heading into the fourth quarter ”will be how much the UAW strike action hits output.”
“So far, it is starting out modestly with just 12,700 on strike, but could quickly escalate and hit output hard,” Mr. Knightley said in a note.
Supply Chains
As many as 12,000 different companies are involved in making every car produced on an assembly line at a Big Three automaker. These components are made by more than 5,600 U.S. suppliers, affecting about 700,000 jobs.
The potential supply chain effects will depend on the size and scope of the UAW strike. If the workplace disruption intensifies, it could ripple throughout automotive supply chains worldwide, S&P Global analysts say.
Work disruptions from the GM strike in September 2019 had a lagging effect, with supply chains facing challenges in subsequent months.
“Imports of parts from Mexico only started to fall in October, while those shipped by sea did not decline until November. The impact will be most keenly felt by auto-parts exporters in Mexico (80 percent of whose auto-parts exports go to the U.S.), Canada (90 percent), and Taiwan (50 percent),” S&P Global analysts reported.
Automobile inventories, which are presently below pre-crisis levels, could take a hit.
During the September 2019 GM strike, vehicle production declined by 50 percent compared to the previous three months. Output at other automakers rose by 6 percent that same month, resulting in limited effects on parts suppliers.
Production hasn’t been halted at all plants belonging to Detroit’s Big Three, just three factories that produce Ford’s Bronco SUV, GMC Canyon and Chevrolet Colorado midsize pickups, and Jeep’s Wrangler SUV and Gladiator pickup.
Domestic auto production has trended downward since the COVID-19 pandemic and has failed to return to the levels seen since January 2020, according to the Bureau of Economic Analysis (BEA).
The UAW strike could also trigger an inflationary response, says Brian Sponheimer, a portfolio manager at Gabelli Funds.
“Depending on the length of the work stoppage, supply constraints on key products could lead to price increases at the dealer level and eventual increases in used car pricing as well,” Mr. Sponheimer said in a note.
In August, new vehicle prices rose 0.3 percent and remain nearly 3 percent higher than the same time a year ago. Used cars and trucks tumbled 1.2 percent last month.
White House Assessing Economic Impact
The White House says it’s too soon to determine what effects the UAW strike will have on the overall economy.
Speaking in an interview with CNBC, Treasury Secretary Janet Yellen stated that the U.S. economy isn’t showing any signs of a looming recession. Many metrics, such as rising industrial output and falling inflation, point to a “healthy” economic landscape, she said.
In August, industrial output rose 0.4 percent month over month and rose to 0.2 percent year over year. Manufacturing production was flat last month and is down 0.6 percent on an annualized pace.
Inflation has reaccelerated for two consecutive months, with the Consumer Price Index (CPI) and the Producer Price Index (PPI) climbing to 3.7 percent and 1.6 percent, respectively.
Ms. Yellen encouraged all sides “to narrow their disagreements and work for a win-win.”
“It’s premature to be making forecasts on what it means for the economy,” she said. “It would depend very much on how long the strike lasts and exactly who’s affected by it.”
Will the current administration intervene?
Appearing on MSNBC’s “Morning Joe” on Sept. 18, Mr. Fain said that he doesn’t see a need for President Joe Biden or the administration to get involved.
“This is our battle,” he said. “Our negotiating teams are working hard. Our members are out there manning the picket lines. Our allies are out there with us. This battle is not about the president. It’s not about the former president. This battle is about the workers standing up for economic and social justice and getting their fair share.”
President Biden announced on Sept. 15 that he dispatched Acting Labor Secretary Julie Su and presidential adviser Gene Sperling to Detroit to help broker a deal.
“The companies have made some significant offers,” President Biden said in prepared remarks. “But I believe they should go further to ensure record corporate profits mean record contracts for the UAW.”
What indirect effects could the UAW strike have on other industries such as transportation, logistics, and manufacturing, and how might these sectors experience slowdowns and layoffs if the strike continues
.2 billion in lost wages over a four-week period, Ehrlich predicts. This reduction in income would have a direct impact on consumer spending, which is a key driver of economic growth in the United States.
In addition to lost wages, the strike could also disrupt the supply chain for the auto industry, causing delays in the delivery of vehicles and parts. This could lead to decreased production and sales for the automakers, further impacting their profits and the overall economy.
The UAW strike could also have indirect effects on other industries that rely on the auto sector. For example, the steel industry has already been affected, with U.S. Steel idling one of its furnaces in response to the strike. If the strike continues and production remains disrupted, other sectors such as transportation, logistics, and manufacturing could also experience slowdowns and layoffs.
The impact of the strike on the U.S. economy will largely depend on the duration of the strike and how it is ultimately resolved. If the strike is resolved quickly and the automakers and UAW can come to a fair agreement, the effects on the economy may be minimal. However, if the strike lingers for an extended period and escalates into a nationwide stoppage, the consequences could be severe.
As negotiations continue between the UAW and the automakers, the outcome of this labor dispute remains uncertain. Both sides have important considerations and demands that need to be addressed. Finding a compromise that meets the needs of both the workers and the companies will be crucial in preventing further disruption to the U.S. economy.
In conclusion, the UAW strike against the Big Three automakers has the potential to significantly impact the U.S. economy. The lost wages, supply chain disruptions, and potential slowdowns in other industries could lead to decreased consumer spending, production, and overall economic growth. The duration and resolution of the strike will determine the extent of the consequences. It is imperative for both the UAW and the automakers to reach a fair agreement that addresses the concerns of both parties and minimizes the negative effects on the economy.
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