Economic impact of the ports strike

Update on 10/3/2024: We estimate that the International Longshoremen’s Association (ILA) strike at East Coast and Gulf Coast ports that lasted from October 1st to October 3rd will have no visible impact on the US economy or inflation. Still, resolving the backlog may take up to a week as West Coast ports are operating near capacity and the peak season for holiday sales shipments is underway. 

We estimate the International Longshoremen’s Association (ILA) strike at East Coast and Gulf Coast ports, initiated on October 1, could shave $5 billion to $7 billion weekly from US GDP. While this is non-negligible for the regions and sectors affected, it would only represent a 0.1% annualized drag on real GDP growth in Q4 for every week of work stoppage. In other words, only a prolonged strike would cast a visible shadow on the economy.
  

Still, with 35% of US trade funneled through these now-quiet ports, the echoes of disruption are palpable. And, while a swift recovery post-strike is anticipated, untangling the backlog could stretch a month for every week of strike action, particularly as West Coast ports are already near capacity and holiday sales shipments continue to arrive.
 

Businesses and policymakers have several levers to pull that could soften the blow. Rerouting shipments to alternative ports, bolstering air freight usage for urgent deliveries and leveraging higher inventory levels are all viable strategies to keep the supply chain flowing. Additionally, government intervention to expedite negotiations could further cushion the economic impact, ensuring the strike’s ripples don’t turn into waves.
 

Sectoral implications

Several sectors heavily rely on imports through East and Gulf Coast ports, critical for their operations and supply chains. The automotive industry, for instance, depends on these ports for importing vehicles and parts, especially from Europe and Asia. The electronics sector also requires timely arrivals of components and finished products to maintain production schedules and meet consumer demand. 
 

Consumer goods encompassing apparel to home appliances as well as the broader manufacturing sector, which requires raw materials such as steel and aluminum, could be significantly impacted by long-lasting disruptions at East and Gulf Coast ports. 
 

Specific industries like textiles and apparel could also face challenges as delays in cotton supplies disrupt production timelines and inflate costs. Additionally, the beauty industry, including products such as essential oils, perfumes and cosmetics, may encounter supply shortages that could result in stockouts and price increases, especially during the peak holiday demand season. 
 

Industries dependent on essential raw materials such as tin, copper, wood and cotton are particularly vulnerable. 
 

Moreover, the chemical sector, including pharmaceuticals, relies heavily on these ports for the import of raw materials and intermediates essential for their production processes, emphasizing the widespread impact of the strike.
 

Importantly, despite concerns about the broad impact of the ILA port strike, the energy sector remains notably insulated from immediate disruptions. According to the U.S. Department of Energy, the strike will not affect crude oil, gasoline, natural gas and other liquid fuel exports and imports, as these commodities are managed by different personnel not involved in the strike. Consequently, there will be no immediate impact on fuel supplies. The Department, in collaboration with the White House and other agencies, will continue to work closely with oil and gas companies, as well as electricity generators and utilities, to monitor operations and ensure a stable energy supply.
 

Employment impact

Around 45,000 port workers who handle daily operations, cargo management and administrative tasks at East Coast and Gulf Coast ports face immediate job disruptions. Indirectly, the strike could affect an additional estimated 60,000 workers in related sectors such as warehousing, transportation and logistics services. 
 

Inflation dynamics

If the ILA port strike is brief, the initial inflationary impact would likely be minimal, with only a slight uptick in prices due to temporary disruptions in supply chains. However, should the strike extend over a longer period, it could lead to more sustained inflationary pressures. As logistical bottlenecks persist and inventories start to deplete, the prolonged disruption could necessitate higher costs passed on to consumers, amplifying inflation in sectors heavily dependent on imported goods.
 

Monetary policy pulse 

The October employment report, released in early November, is expected to be noisy as the ongoing strike at Boeing and the ILA strike could significantly depress job gains. While the Fed will likely look through temporary strike effects, any notable weakening in payroll growth and large rise in the unemployment rate could tip the scale in favor of another 50bps rate cut for data-dependent Fed policymakers. 
 

For now, we continue to anticipate the Fed will ease policy by 25bps at every meeting through June of next year. This would translate into 50bps of rate cuts by year-end and another 100bps in H1 2025, putting the fed funds rate at 3.4% in June 2025.