DBG-Black Swan will come with high inflation and recession

The United Auto Workers (UAW) is in talks with the big three automakers. The current contract expires on September 14 local time. When the clock strikes midnight and negotiations have not progressed, the strike could lead to higher inflation and significant economic damage.

10 days can cause $5.60 billion in losses

Anderson Economics, a Michigan-based economic consulting firm, said General Motors, Ford Motor and StrantisJust 10 daysJust shut downMake AmericaGDPReduced by $5.60 billion,And it could tip Michigan's economy into recession. It could also cause some models to become scarce and return to higher prices after falling from record levels.

If UAW President Shawn Fain follows through on his threat to strike at three companies on Thursday, it will have far-reaching consequences. Prolonged strikes will hit suppliers and their workers and weaken the prices of major commodities, especially steel. The economies of Michigan, Ohio and Wisconsin will be hurt,Biden is seeking in the 2024 electionSwing stateThe support will beIt becomes more difficult.

Patrick Anderson, CEO of Anderson Economics Group, said:

"If we had a long strike in 2023, Michigan and parts of the Midwest would be in recession."

He noted that when GM workers went on strike in 2019, Michigan's state gross domestic product fell in the fourth quarter, while other areas were largely unaffected. But if the UAW follows through on its threat to crack down on all three companies, that will not be the case this time.

The Biden administration is nervous about the strike. The auto industry accounts for aboutGDP3%, playing a larger role in the Great Lakes economies,Democrats will rely on winning Michigan and Wisconsin to maintain the White House.Therefore, the president appointed Gene Sperling, a Michigan native and former economic adviser to President Obama and President Clinton, to serve as a liaison between automakers and labor unions.

Michigan Governor Gretchen Whitmer said in an interview last week,She is concerned about the progress of the negotiations, and it is "unclear" what else she and her state can do.

Anderson said that of the economic cost of up to $5.60 billion, workers would lose $859 million in wages, automakers would lose $989 million in revenue, and the rest would come from layoffs and business losses at component makers and other industries that rely on the three automakers.

When GM workers went on a six-week strike in 2019, American Axle & Manufacturing Holdings said its fourth-quarter earnings before interest, tax, depreciation and amortisation fell 25% to $194 million because of the strike alone. Hot-rolled steel prices fell 17% in six weeks to $500 a tonne.

Richard Bourke, a senior analyst who focuses on basic materials, said that if each car uses one ton of steel,The monthly steel production may beDue to the strikeA decrease of 76,000 tons to 98,000 tons.

Research group CRU Group has warned that...If the strike continues for a longer period of time, such as three to four months, it could force some steel mills to shut down production.The impact of a prolonged strike on the steel industry will also drive up prices in the first half of 2024.

The union demands a 46% pay raise over four years.

UAW Chairperson Fain asked companies to provide defined benefit pensions and retiree health insurance,Ask for a 46% pay raise over four years, a 32-hour work week, and the restoration of living allowances.He also wants to end pay scales that offer better treatment to tenured employees.

The automaker estimates that if all of Fain's requirements are met,The cost will increase by 80 billion dollars in four years.Most of this comes from pensions and retiree health care costs.

According to Anderson,The bigger risk is that automakers agree to some of Fain's more expensive demands.For example, restoring guaranteed pensions and retiree health care, which in part led General Motors and the former Chrysler LLC to file for bankruptcy in 2009.

General Motors agreed to a 16 per cent pay rise, but not to the retiree benefits Mr. Fein had asked for. Ford had made a similar offer before, but it was also rejected. Mr. Strantis offered a 14.5 per cent pay rise to a "majority" of unionised workers, which was rejected.

Rising wages are not a good thing for the Federal Reserve

If workers eventually see a significant increase in wages,No matter whether there is a strike or not, it will drive up labor costs across the country.Truck drivers at United Parcel Service and pilots at American Airlines, a group company, saw sizable pay increases over the summer. Hollywood actors and writers have gone on strike with the same result.

The truckers union won a $30 billion contract from UPS that will eventually pay truckers $49 an hour, compared with a maximum hourly wage of $32 for autoworkers.The increase in wage costs will eventually be passed on to consumers.UPS then increased its average price this year by 6.9% and plans to increase it by another 5.9% in December. Anderson said,If automakers bear too much cost, they will lose their competitiveness.

Shield BoThe foreign exchange DBG said the Federal Reserve is factoring in wage increases to fight inflation, which has prompted the Fed to raise interest rates 11 times since the start of 2022. Average hourly earnings in the U.S. rose 4.3% year-on-year last month, down from last year's peak of 5.9% but still at an all-time high.

Economists at Citigroup said in a report,At least in industries where labor is scarce, average annual wage increases of more than 5% will continueYear.This means that...In the coming years, labor costs will continue to rise at a rate higher than 2% inflation.