More than 143,000 autoworkers are expected to strike when their contracts with America's Big Three automakers expire on Thursday night.
A prolonged work stoppage by the United Auto Workers (UAW) union at Stellantis (STLA), GM (GM), and Ford (F) could have broad economic impacts that reach as far as the Federal Reserve's next decision on interest rates.
"The impact would cloud the incoming economic data for the next few months, making it harder for the Fed to claim that the figures are breaking decisively one way or the other," Oxford Economics economists Michael Pearce and Nancy Vanden Houten wrote in a note on Wednesday. "That would add, at the margin, to the case for a pause in rates."
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UAW contracts are set to expire at midnight on Thursday, and UAW President Shawn Fain has threatened union members will strike if the two sides can't agree on key issues including wage increases and increased worker benefits.
"At this point, a strike seems almost certain," BofA research analyst John Murphy wrote in a research note on Wednesday.
A strike would cut motor vehicle output by about 30% as long as it were to last, per Oxford, which would provide a drag on quarterly economic growth. The workers' temporary exit from their jobs could also impact the monthly payroll report for October just as the Hollywood strikes dragged down payroll additions in the month of August. Additionally, if fewer cars are made, that could send vehicle prices higher, which in turn would have an upside risk to inflation overall.
In a note titled the "Q4 pot hole" economists at Goldman Sachs highlighted the strike as one of three reasons US economic growth is primed to slow down in the final quarter of 2023. The Big Three automakers account for nearly half of domestically assembled auto vehicles, according to Goldman Sachs, and a strike would likely eliminate all of that production. That would negatively impact quarterly annualized GDP growth by 0.05 to 0.10 percentage points for each week the strikes lasts, per Goldman Sachs.
Research from the firm projects that on the eve of the potential strike it's hard to predict the full economic impact.
"The cumulative impact on GDP growth from a UAW strike is uncertain because a strike is not a foregone conclusion and its duration is uncertain," Goldman Sachs economists Alec Philips and Ronnie Walker wrote in the note on Tuesday night.
Goldman Sachs points out that in 2007, a UAW strike at GM lasted three days. But in 1998, a UAW strike at GM lasted 54 days. Oxford economists used projections for a strike that lasts somewhere in the middle, about four to six weeks. They estimate that a UAW strike would directly reduce GDP by 0.2% to 0.3%. But that decline could be reversed in the following weeks.
"Assuming the strike ended within 4-6 weeks, there would probably be enough time for output to rebound before the end of the quarter, meaning the impact on Q4 GDP would be negligible," Oxford's economists wrote.
The most meaningful impact could be on car prices, which have been falling since a post-pandemic boom combined with a chip shortage sent prices skyrocketing in 2021.
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"The impending UAW strikes might put additional strain on the fragile inventory situation," said Edmunds, an online resource for car pricing among other tools.
If inventory shrunk further, forcing car prices higher, it could have a negative impact on the Federal Reserve's goal of bringing inflation down to 2%. Oxford Economics found in 1998 it took four months to rebuild auto inventories after the more than 50 day strike.
The 2023 recovery could take even longer.
"Given the starting point, and the wider number of automakers potentially affected, the recovery in auto inventory could be set back a year or more," Oxford Economics economists wrote. "This would be an upside risk to our inflation forecasts, which assume further gradual goods disinflation."
Josh Schafer is a reporter for Yahoo Finance.
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