A lot of time has been spent discussing the potential positive impact to the economy from lower oil prices. This has caused most economists to raise their economic forecasts for 2015. Most forecasts are now calling for economic growth above 3% with the highest forecast (via Bloomberg) being 3.8% growth for 2015. One situation that has not received a lot of national coverage is the economic impact of a strike or a shutdown at West Coast ports.
The ongoing labor dispute between the dock workers union (International Longshore and Warehouse Union) and management (Pacific Maritime Association) appears to be deteriorating. Talks have broken down and both sides are claiming the other is going to cause the ports to shutdown. Various news articles have documented both sides of the situation, so I will not repeat that information here. Today’s blog tries to give some perspective on the potential impact to the U.S. economy.
A study released by BofA Merrill Lynch Global Research estimates that West Coast port activity contributes $600 billion to the U.S. economy. Since current U.S. GDP is $17.7 trillion, that means that West Coast port activity contributes 3.5% of U.S. economic growth.
What does that translate to as an actual impact to economic growth? Unfortunately, there is no black and white answer to that question. Simple math would say that if we divide $600 billion by 365 days, that would mean a loss of $1.64 billion per day. That does not account for potential negative ripple effects to other businesses that could make the number larger or for some companies ability to shift to alternative shipping methods that would lower the impact. BofA Merrrill Lynch Global Research concludes the impact would be $800 million to $1.8 billion per week. They estimate that would reduce annualized 1st quarter GDP growth by .1 to .2%. If that is true, then a month long strike would subtract .4 to .8% off of economic growth. The Retail Industry Leaders Association is far more negative. They believe a West Coast port shutdown would be far more catastrophic. Their estimate is $2 billion per day, or $14 billion dollars a week.
For the West Coast states, the impact could be far more severe. One of the Puget Sound Business Journal articles about the potential port shutdown quoted a report from the Agriculture Transportation Coalition that estimates that port activity is responsible for 60% of Washington’s GDP, 40% for California, and 5% for Oregon.
The bottom line is that the West Coast port situation is not a trivial matter. Depending on the length of a shutdown and the multiplier effect to businesses, 1st quarter economic growth may not be as strong as initial forecasts unless some other part of the economy picks up the slack.
Steve Scranton is the Chief Investment Officer and Economist for Washington Trust Bank and is a CFA charter holder with over 30 years of investment experience with equities, tax-exempt and taxable fixed income securities. Steve actively participates on committees within the bank to help design strategies and policies related to client and bank owned investments. Steve also serves as the economist for the Bank and has been a featured speaker for both client and professional organization events throughout the Northwest.