Prolonged Strike at GM Could Disrupt Economy

Associated Press

A strike against General Motors will likely skew crucial data for assessing the impact of a housing slump and credit squeeze, but the degree of danger the walkout poses to the U.S. economy depends on how long it drags on.


The automaker and the United Auto Workers resumed contract talks Monday afternoon, just hours after the union called the strike. For auto-industry analysts, that was a sign the two sides could quickly resolve disagreements over job security and benefits.

If a settlement comes in a matter of days, rather than months, the economy would probably suffer little damage, economists say.

But a protracted work stoppage could prove disastrous with a housing downturn and credit market unrest already threatening to stall an expansion now in its sixth year.

"If the strike lasts a month or longer, it could take 1 percentage point off of real GDP (gross domestic product) in the fourth quarter, or more, even if activity ramps back up in December," Merrill Lynch analyst David Rosenberg said.

Significant Blow

That would be a significant blow considering economists were forecasting a slim 2.1 percent gain in real fourth-quarter GDP, according to the Blue Chip consensus forecast.

"Lost income can also have a negative impact on consumer outlays in the months after the strike resolution since the income lost during a strike is gone permanently," Rosenberg

The 73,000-strong UAW walked out Monday in the first national strike against GM since 1970.

The number of workers directly involved in the current strike is a fraction of the total that walked off the job 37 years ago. Fierce competition from foreign manufacturers has cut into GM's market share -- and UAW's membership -- since then.

Striking workers normally do not qualify for jobless benefits, but others who are out of work as a result of a strike do. That means the government's regular Thursday tally of workers filing claims for jobless benefits may jump over the next few weeks.

Watching Jobs Data

The walkout comes at a time when investors are watching employment data particularly closely. Talk of recession has intensified and the Federal Reserve is scrutinizing economic
reports for signs that businesses are cutting jobs to cope with tightening credit and falling home prices.

"Should the GM strike last more than a few days, the strike will lead to layoffs in supplier industries and would have a noticeable effect on upcoming economic data," JPMorgan analysts
wrote in a note to clients.

At the very least, "this would complicate the interpretation of economic data at a time when the markets and the Fed are keenly interested in the effects of recent credit tightening and house price declines on the pace of economic activity," they wrote.

UBS economists said the work stoppage came too late to affect the government's September count of U.S. payrolls, set for release on Oct. 5, but it would affect a report on September industrial production slated for release later in the month.

Even so, a long strike could also discourage employers in a range of industries from hiring more workers and could contribute to another contraction in payrolls in the months ahead. The number of nonfarm workers on U.S. payrolls slipped in August, the first decline in four years.

Last Strike in 1998
The last UAW strike against GM came in 1998, when workers struck two plants in Michigan. At that time, weekly jobless claims spiked soon after the strike began as employees at companies that supply the automaker shut down.

In the 1998 strike, fewer than 10,000 UAW workers walked off the job, but the stoppage indirectly affected some 150,000 manufacturing workers over the nearly two months that it
dragged on.

This time, "the costs may be considerably more severe than in 1998 given that that was a local strike and this one could go national," Merrill's Rosenberg said.

UAW Strike Latest

"We have not seen strikes of that magnitude since the early 1970s, when there was a work stoppage that lasted 100 days. It is not expected that this strike will be as long, since the
losses on both sides could be considerable, but the risks are there nonetheless," he added.

The 1970 strike cut as much as 2 percentage points off of fourth-quarter GDP, Rosenberg said, and intensified an existing recession as jobs were lost and spending declined.

"Currently, economic activity is very sluggish, so the fallout could be graver than if the economy was operating closer to full capacity, as was the case in 1998," he said.

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