The United Auto Workers strike could hamper U.S. economic growth and potentially encourage the Fed to lower interest rates, which would bring down mortgage rates. But it could also increase car prices, pushing up inflation and motivating an interest-rate hike.
The United Auto Workers strike is bigger and more disruptive than expected, and compared to other recent strikes. It could have a major impact on the U.S. economy, which may spill over into the housing market. The key to whether the strike is an economic blip or a major concern is how long it lasts; the longer it goes, the more likely it is to disrupt the economy.
What makes this strike different
The UAW is targeting the three biggest domestic car manufacturers at the same time, and strategically targeting plants that are most disruptive to shut down. This is the first time in history union workers are striking against all “Big Three” automakers. All together, the targeted manufacturers and brands account for nearly half of the U.S. car market.
Experts expect this strike to drag on for a month or two, since the two sides are very far apart. That’s longer than usual, and the longer the strike lasts, the more potential it has a big impact on the U.S. economy.
How the UAW strike could impact the economy
Lost income and lost economic output
- Workers lose income for as long as they’re on strike and the plants are shut down. There is a strike fund that provides $500 per week to striking union members and workers who are unable to work because their plant is shut down could get unemployment benefits, both of which make up for some–but not all–of the income reduction. If the strike goes on for an extended period, the strike fund and unemployment insurance could run out. Lost income leads to people spending less money–which could have already started–and eventually leads to lower prices.
- The affected manufacturers lose income when they’re unable to make cars. The longer the strike goes on, the more revenue they’ll lose. This will be offset some by brands that aren’t shut down, particularly electric-vehicle makers.
- Suppliers of car parts will lose income if their parts aren’t needed.
- There will also be downstream effects. For instance, car dealers may shut down if they have nothing to sell.
- Locally, it could push some markets (like Michigan) into recessions
- Nationally, economists expect the strike to bring down Q4 GDP by 0.2 to 0.4 percentage points and to shave a small amount off of Q3 GDP; currently, the economy is estimated to be growing at about 3-4% annually.
Prices and inflation
- Car inventory is already lean coming out of the pandemic, when manufacturers couldn’t get enough chips to make the necessary amount of vehicles.
- The strike’s drag on inventory will push car prices higher during a time when the Fed is already fighting inflation. But the Fed may not care much because they’re mostly concerned about broad-based underlying price pressure and the strike is temporary.
Stocks and bonds
- If the stroke lasts long enough that macroeconomic damage is severe, there will likely be a spillover into financial markets.
- Stocks could go lower and credit spreads could widen in bond markets.
Other major events could exacerbate effects of the UAW strike to significantly reduce U.S. economic growth
- Ongoing SAG and WGA strikes: They have cost the California economy an estimated $3 billion. A drag on California’s economy is significant because if it were its own country, it would have the 5th-largest economy in the world.
- Resumption of student loan payments: Student loan payments will resume in October. If all payments were made in full, that would amount to an estimated $70 billion. Much of that would come out of consumer spending. However, some borrowers may not start repaying and some will qualify for lower payments through the newly revamped income-based repayment plan. Still, economists estimate student-loan repayment will take roughly 0.5 percentage points off Q4 GDP.
- Potential government shutdown: If Congress and President Biden don’t come to a budget agreement by October 1, the federal government will once again shut down. That would reduce Q4 GDP by an estimated 0.5 percentage points if it lasts for 2 to 3 weeks. But negotiators could come to an agreement or temporarily extend the deadline.
Economists estimate Q3 GDP to come in around 3% to 4% and Q4 GDP to slow down to 1% to 2% at an annual rate due to these potential factors.
Housing-market takeaways
If the UAW strike extends for more than a month, it could have both positive and negative impacts on the housing market. If the other economic events outlined above also have a big drag on economic growth,the impacts would be bigger. It’s unlikely it would tip the U.S. into a broad recession.
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- Mortgage rates could decline. Nationwide, slower economic growth means the Fed could keep interest rates lower than it otherwise would have. That would increase the odds of mortgage rates coming down, which would boost the housing market because it would encourage homebuyers to jump back into the market, help homes become more affordable, and motivate homeowners locked in by low rates to sell.
- Or mortgage rates could stay high. On the flip side, higher car prices would push up inflation, which could cause the Fed to hike interest rates again and keep mortgage rates elevated. But it might not: The Fed could easily dismiss rising car prices as temporary.
- Some local housing markets could suffer. In some of the areas most impacted by the UAW strike–like Michican, Ohio and Missouri, where the targeted plants are located–many workers will lose income. That would dampen homebuying and selling.
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