Other Unions May Strike Following Dockworkers' Wage Increase

Concerns Over Middle East Developments

There is ongoing concern in the markets due to developments in the Middle East. Oil prices have remained subdued but are on track for a weekly gain of around 8%. The market is also anxiously awaiting Israel's response to Iran and the US Employment Report due today.

End of Dockworkers' Strike

The East Coast and Gulf Coast dockworkers' union recently reached an agreement with port operators, ending a three-day strike at ports from Maine to Texas. The port operators proposed a 62% wage increase over six years, following pressure from the White House on shipping lines and cargo terminal operators to increase their initial offer of 50%. The agreed wage increase is less than the 77% demanded by the union, the International Longshoremen’s Association (ILA), but is more favorable than the deal reached by the West Coast dockworkers' union last year. The base hourly rate for ILA port workers will increase from $39 to $63 over six years. It's worth noting that many dockworkers currently earn over $100,000 per year. The agreement will last until January 15, 2025, during which time the two sides will negotiate on other issues, such as automation on the docks. The strike and wage increase have increased the incentives for cargo terminal operators to invest in automation, as robots don't strike. However, the level of artificial intelligence in these robots may determine whether they will strike or not.

Implications of the Agreement

While the agreement prevents shortages and price spikes in the short term, it will likely lead to higher costs for shipping lines and cargo terminal operators. These costs will likely be passed on to manufacturers, farmers, and retailers. President Biden released a statement saying that "collective bargaining works, and it is critical to building a stronger economy from the middle out and the bottom up." He made it clear to the employers of the dockworkers that he would not use his federal powers to break the strike. This stance is likely to be maintained by a Harris administration, if she wins in November, encouraging other unions to follow the ILA's lead.

Global Political Developments

While Biden appears to have played a role in resolving the domestic port strikes, he seems to have been sidelined by Israeli PM Benjamin Netanyahu. Netanyahu is betting that he can get away with anything now that the Democrats and Republicans are in the final weeks of a close race for the White House, the Senate, and the House of Representatives. As the Israeli invasion of Lebanon continues, the Middle East is still waiting for Israel’s retaliation against Iran’s ballistic missile attack earlier this week.

ISM Services Survey Results

The ISM services survey released yesterday sent a stagflationary message that the FOMC may not want to hear. While the prices paid index jumped to 59.4 in September from 57.3, the employment index fell from 50.2 to 48.1, which is in contractionary territory. The Fed, having shifted its focus from fighting inflation to preventing further labor market deterioration, may have some questions raised by this report. However, the business activity index improved to 59.9 from 53.3, offsetting some of the concerns caused by the weak employment index.

Bottom Line

The recent dockworkers' strike and subsequent wage increase agreement may have far-reaching implications for other unions, potentially sparking similar demands. At the same time, global political developments and the results of the ISM services survey could have significant impacts on the markets. What are your thoughts on these developments? Share this article with your friends and sign up for the Daily Briefing, which is every day at 6pm.