What the UAW Strike Means for the Economy

The “perfect storm” and “triple witching hour” metaphors so often applied to news stories does become overdone. But often, even if not to the ultimate extreme, events pile up for complicated and painful impacts.

That seems to be the situation in the economy at the moment because of three significant events: the United Auto Workers (UAW) strike that began this morning, the restart of student loan payments on the part of millions, and a potential government shutdown. Not a single one by itself could seriously undercut the economy. All three together are far from a deathblow.

And yet, they could — and probably will — take a toll at a time when the economy is shaky and vulnerable.

UAW Strike

The UAW began its strike against the three big automakers — GM, Ford, and Stellantis Friday morning with the two sides unable to reach consensus during the negotiations.  The union had demanded a more than 40% pay increase and cost-of-living adjustments, while the automakers have gone from 9% to 20% and a COLA rather than a one-time inflation payment. 

Anderson Economic Unit (AEG) estimates that even a 10-day strike against all three companies would result in total wage losses of $859 million, manufacturer losses of $989 million, $3.5 billion in economic cost and $2.1 billion costs to consumers “who wouldn’t be able to get necessary repairs and replacement parts, and by dealers and their employees.” Although there have been big strikes before, inventory levels are low. 

There is also the impact on inflation to consider. A lack of new cars helped drive up the inflation spike, which could occur again along with the now rising energy costs. But unlike energy costs, vehicle prices are still counted in core inflation, which could change the calculus the Federal Reserve uses when considering additional rate hikes.

Government Shutdown

The divisions and disagreement between and even within political parties, and the lack of a spending agreement before October 1, the beginning of a new fiscal year, could lead to a government shutdown. Goldman Sachs is saying that a shutdown is “more likely than not.”

There is a cost to the economy. The Congressional Budget Office estimated that the five-week partial shutdown between December 22, 2018 and January 25, 2019 resulted in a $3 billion loss in GDP in 2018 Q4. “As a share of quarterly real GDP, the level of real GDP in the fourth quarter of 2018 was reduced by 0.1 percent, CBO estimates,” the agency wrote. “And the level of real GDP in the first quarter of 2019 is expected to be reduced by 0.2 percent. (The effect on the annualized quarterly growth rate in those quarters will be larger.)” 

Uncertainty about the country’s ability to manage its fiscal affairs has led to credit downgrades before, and it might make the Fed reconsider rate decisions. 

Student Loans

After a long delay in payment, student loans are again front and center for the borrowers. Consumer worries about the future — including record-high credit card borrowing, prices of everything quite higher than they were a couple of years ago, and slowing pay increases — have already suggested that millions are ready to cut back their spending.

Consumers are responsible for 68% of GDP. Any big cutback means a slowing, or maybe retreating, economy. That’s the big picture. The somewhat smaller CRE picture is that as many as 5 million student loan borrowers will need to resume making payments of close to $275 per month on average, amounting to nearly 0.25% of GDP, said Moody’s Analytics Chief Economist Mark Zandi and Moody’s team. Many may have no choice but to trade down from Class A to lower rated accommodations, or possibly move home. 

“These renter households already are stretched financially due to high rent growth experienced in 2021 and the first half of 2022,” Jay Lybik, national director of multifamily analytics at CoStar Group, told GlobeSt.com back in July.