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Goldman Sachs predicts that the United Auto Workers strike is just one of three significant obstacles that US economic growth will face in the next quarter.
In their recent note (which you can read in full here!), the economists at the bank estimate that the largest impact on 4Q growth will come from the resumption of student-debt payments. They predict that this will reduce the US’s annualised growth rate for 4Q by approximately 0.5%.
It’s important to note that all the bank’s forecasts are presented as annualised rates, but they only reflect one quarter of GDP. The effects of the UAW strike are expected to start in 3Q, since it began on September 15. Similarly, while student loans started accruing interest again in September, payments won’t be due until October.
Additionally, another significant factor that could affect Q4 growth is a potential government shutdown. Goldman Sachs anticipates that each week of a governmental shutdown will reduce Q4’s growth by 0.2 percentage points.
Lastly, the economists at Goldman Sachs expect the UAW strike to have a negative impact on Q4 growth. For every week that the strike continues, they anticipate a decrease of 0.05 to 0.1 percentage points.
However, it is crucial to note that these strike estimates are complex and may not accurately depict the current situation. Goldman Sachs assumes that auto production will decrease significantly at every company with striking workers, reducing it to “roughly zero”. However, so far, the UAW has only initiated limited strikes at three factories. This approach helps the union preserve their strike fund but makes it challenging to project the economic impact.
In his analysis, John Murphy, Bank of America’s auto manufacturers analyst, argues that although the UAW strike targets plants that assemble profitable vehicles, it is less severe than it could be. He notes that the affected plants are final assembly plants, not key component plants. Murphy estimates that the daily cost of the strike for General Motors is about $16 million, $20 million for Ford, and $33 million for Stellantis.
Murphy also provides specific details about the plants affected by the UAW strike:
For GM, the UAW will strike at the Wentzville Assembly Center that builds the Chevrolet Colorado and GMC Canyon midsize trucks as well as the Chevrolet Express and GMC Savana vans. At Ford, the UAW will strike at the Michigan Assembly Plant on the assembly and paint lines only. This plant makes the Ford Bronco and Ford Ranger. At Stellantis, the UAW is striking at the Toledo Assembly Complex in Toledo, OH that makes the Jeep Wrangler.
Furthermore, Murphy predicts that wages will increase by 25-30% over the next four years as a result of the strike.
Although there will be some volatility as production is taken down, it appears that the ultimate increase in labor costs will meet our expectations from January, with a cumulative increase of 25-30% over four years. This would be approximately a 400-500 basis point headwind to operating margins.
While higher wages may negatively impact automakers’ operating margins, it is unlikely to significantly contribute to inflation, which is often seen as a trade-off for increased wages. Murphy downplays the potential economic effects of substantial UAW raises or a broader union trend across the labor force.
In our view, the resolution of the strike would have little impact on the rest of the labor market. Only 6% of private sector employment is represented by a union. Therefore, most of the workforce does not negotiate wage increases through collective bargaining. Instead, we expect aggregate wage inflation to continue to moderate given the ongoing decline in the quits rate.
Solidarity… forever? 😢
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