Evelyn Reynolds
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Defense Department Awards Chip Funding to Fuel Domestic Research
The $238 million in grants will set up eight research hubs, as a small slice of the federal money that will go to chip companies and research facilities in the coming months.The Biden administration on Wednesday announced that it was awarding $238 million through the Defense Department to set up eight hubs around the United States for promoting innovation in the semiconductor industry.The funds are one of the earliest releases of the nearly $53 billion in grants and subsidies that Congress and the Biden administration have approved to build up the domestic semiconductor industry, which U.S. officials say has been left vulnerable by decades of offshoring.The Biden administration has a variety of funding programs in the works to encourage chip research institutions and manufacturers to set up operations in the United States. Most of these programs are run through the Commerce Department, and many will begin handing out money this fall.While U.S. companies still design many of the world’s most advanced chips, much of the manufacturing of the technology has been outsourced to foreign locations, including Taiwan, leaving U.S. chip supply vulnerable if, for example, the Chinese government were to invade Taiwan.The awards announced Wednesday will go to research institutes, consortiums and universities located in New York, Arizona, Indiana, Ohio, California, North Carolina and Massachusetts, defense officials said.Each hub will receive $15 million to $40 million to fund the development of new chips for use in electromagnetic warfare, artificial intelligence, 5G and 6G wireless technologies, and quantum computing, among other areas. While the research will be directed at meeting the needs of the Defense Department, it is also expected to be useful for commercial applications.Kathleen Hicks, the deputy defense secretary, said in a news conference Wednesday that the hubs would “tackle many technical challenges relevant to D.O.D.’s missions, to get the most cutting-edge microchips into systems our troops use every day: ships, planes, tanks, long-range munitions, communications gear, sensors and much more.”The funding also aims to accelerate what the industry refers to as the “lab-to-fab transition,” the process of taking new chip technologies and turning them into viable commercial products.David A. Honey, the deputy under secretary of defense for research and engineering, said the hubs would bring more prototype work to the United States.“Now we’ll be able to get it done here,” he said. “And also we’re building out in the areas that are just not available anywhere else.”The Commerce Department is separately setting up a string of research hubs for the semiconductor industry, collectively called the National Semiconductor Technology Center, drawing on $11 billion in funding it received for research and development.Appearing before the House Science, Space and Technology Committee on Tuesday, Gina Raimondo, the commerce secretary, said that her department was on track to formally unveil that technology center this fall.She also said that the department had received about 100 applications from companies hoping to receive grants that will be available to manufacturers.While Ms. Raimondo acknowledged that the grant program faced challenges, like securing enough workers to staff new chip plants, she said that if properly implemented, the program would make the United States “the premier destination in the world” for chip design, research and manufacturing.“That’s the vision that we’re trying to achieve with your support,” Ms. Raimondo told lawmakers.Ms. Raimondo was also questioned about the release in prior weeks of an advanced smartphone by Chinese telecom giant Huawei. The company is under heavy U.S. trade restrictions, administered by the Commerce Department, that theoretically should have prevented such an innovation.Ms. Raimondo said that she was upset by the development, but added that the U.S. government did not have any evidence that Chinese companies could manufacture the more sophisticated chips at scale.Ms. Raimondo said that the United States could take various defensive measures to limit China’s access to advanced technology, but “my strongly held view is that what we do on offense matters so much more.”“The reality is that over the past 30 years, this country has taken its eye off the ball of manufacturing,” she continued. “And when you don’t manufacture you lose out on innovation, and you become dependent on other countries.” More
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The Fed would be ‘flying blind’ on interest rate decisions after a government shutdown
A looming government shutdown could prevent the Federal Reserve from raising rates in November, Bank of America says.
Policymakers would have only limited access to inflation data with departments shut that produce key reports.
If the impasse lasts longer than a month, “we think the prudent course of action would be for the Fed to stay on hold in November,” Bank of America said.An eagle sculpture stands on the facade of the Marriner S. Eccles Federal Reserve building in Washington, D.C.
Andrew Harrer | Bloomberg | Getty ImagesA looming government shutdown could prevent the Federal Reserve from raising rates in November, but not for the reason you might think, according to Bank of America.
Not only would the shutdown potentially slow down the economy and make a rate hike the wrong move, but a long impasse would mean central bank policymakers have only limited access to inflation data, the investment bank noted. That’s because unfunded agencies such as the departments of Labor and Commerce wouldn’t be producing key data reports on price trends.“If the shutdown lasts for a month or more, the Fed would essentially be flying blind at its November meeting, having learned very little about economic activity and price pressures since the September meeting,” Bank of America U.S. economist Aditya Bhave said in a note.
While Bhave said a long shutdown is not expected, if it lasts longer than a month, “we think the prudent course of action would be for the Fed to stay on hold in November. Could the Fed hike in December instead? That is again a close call, but we think a skip in November more likely means the hiking cycle has ended, unless inflation clearly picks up again.”
The Fed relies closely on reports from Labor and Commerce to gauge inflation.
In particular, it focuses on Commerce’s personal consumption expenditures price index as a yardstick for where inflation is headed for the longer term. Labor’s consumer price index is a widely followed measure by the public and also figures into Fed calculations.
While they aren’t the only inflation gauges central bank officials use, not having them around in November would complicate the rate decision.To be sure, markets think the Fed is done already anyway.
Pricing in the fed funds futures market indicates a less than 30% probability of a final hike in November, according to the CME Group’s FedWatch measure. The tool indicates the central bank could start cutting by June 2024.
Bank of America, though, expects the Fed to approve one more hike, which would take its key borrowing rate to a target range of 5.5%-5.75%. Bhave said that if the shutdown only lasts a few weeks, the Fed would have enough time to gather data and likely raise rates again, though he said a hike wouldn’t be certain if inflation continues to moderate.
The Fed concludes its two-day meeting on Wednesday, with markets overwhelmingly expecting rates to stay put.
— CNBC’s Michael Bloom contributed reporting.
Correction: Another hike by the Fed would take its key borrowing rate to a target range of 5.5%-5.75%. An earlier version misstated the range. More - in Economy
U.A.W. Threatens Strikes at More Plants
The United Auto Workers union said workers would walk out of more plants on Friday if it didn’t make progress in talks with General Motors, Ford and Stellantis.The United Auto Workers said on Tuesday that the union would expand its strike against three U.S. automakers on Friday if it was unable to make substantial progress in contract talks with them.Nearly 13,000 U.A.W. members walked off the assembly lines at three plants last Friday, one each at the three companies — General Motors, Ford Motor and Stellantis, the parent of Chrysler. The union has demanded a 40 percent wage increase over four years, better benefits and other changes. The automakers, which are based in or have a big presence in Michigan, have offered raises of about half as much.In a video posted on Facebook on Tuesday, the union’s new president, Shawn Fain, said workers could walk out of more plants at the end of this week.“If we don’t see serious progress to noon Friday, Sept. 22, more locals will be called on to stand up and go on strike,” he said. “We’re going to keep hitting the companies where we need to.”Separately on Tuesday, Mr. Fain responded to criticism by former President Donald J. Trump, who is expected to visit the Detroit area next week.“Every fiber of our union is being poured into fighting the billionaire class and an economy that enriched people like Donald Trump at the expense of workers,” Mr. Fain said. “We can’t keep electing billionaires and millionaires that don’t have any understanding of what it is like to live paycheck to paycheck and struggle to get by and expecting them to solve the problems of the working class.”In an interview on NBC’s “Meet the Press” last weekend, Mr. Trump said Mr. Fain and the union were “failing” workers in the shift to electric vehicles that has been championed by President Biden.“The autoworkers are being sold down the river by their leadership,” he said, adding: “All of these cars are going to be made in China. The electric cars, automatically, are going to be made in China.”Mr. Biden has expressed support for the striking workers, although the U.A.W. has not endorsed his re-election thus far. The union has long backed Democratic presidential candidates, but some of its members supported Mr. Trump in the last two elections.Here Are the Plants Where U.A.W. Strikes Are HappeningSee the plants owned by Ford, General Motors and Stellantis where U.A.W. members are on strike.The union and the companies, which are engaged in three separate negotiations, remain far apart. The companies have offered raises of about 20 percent, but Mr. Fain has said that doesn’t go far enough to make up for the impact of inflation and concessions the union made over the last 15 years.The union also wants pensions to cover more workers, company-paid health care for retirees, shorter working hours and measures that make it harder for the companies to close plants in the United States. The automakers have rejected most of those other demands.In statements and interviews, auto executives have said meeting all of the union’s demands would put them at a severe competitive disadvantage to nonunion plants operated by Tesla and foreign automakers such as Toyota and Volkswagen. G.M., Ford and Stellantis already have higher labor costs than most nonunion car companies.The three automakers have said they cannot afford substantial raises and new benefits because they are investing tens of billions of dollars to develop electric vehicles and build battery plants. More
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Disney Plans to Spend $60 Billion on Parks and Cruises
Amid uncertainty for the company’s film and TV divisions, the investment over the next decade doubles the outlay in the last 10 years.Disney’s theme parks will generate an estimated $10 billion in profit this year, up from $2.2 billion a decade ago. Not bad for a 68-year-old business, especially considering the devastation wrought by the pandemic just a couple of years ago.But how much boom is left?Last month, when Robert A. Iger, Disney’s chief executive officer, singled out the parks division as “a key growth engine” on an earnings-related conference call, Wall Street furrowed its brow. Disneyland in Anaheim, Calif., has long been viewed as maxed out, with little room to expand. Walt Disney World near Orlando, Fla., has become a question mark, given that Mr. Iger has said the company’s legal battle with Florida’s governor, Ron DeSantis, could imperil $17 billion in planned expansion at the resort over the next decade. Disney’s overseas parks — aside from Tokyo Disney Resort, which it receives royalties from but does not own — have sometimes struggled to turn a profit.On Tuesday, Disney offered a clearer picture of the opportunity it sees, which can only be described as colossal: The company disclosed in a security filing that it planned to spend roughly $60 billion over the next decade to expand its domestic and international parks and to continue building Disney Cruise Line. That amount is double what Disney spent on parks and the cruise line over the past decade, which was itself a period of greatly increased investment.In the past decade, Disney has opened the Shanghai Disney Resort, more than doubled its cruise line capacity and added rides based on intellectual properties like “Star Wars,” “Guardians of the Galaxy,” “Tron,” Spider-Man, “Avatar” and “Toy Story” to its domestic parks. Disney has also poured money into its Paris and Hong Kong parks, with themed expansions tied to “Frozen” and other Disney films scheduled to open soon. Three more ocean liners are on the way, bringing the Disney fleet to eight ships, and Disney is nearing completion of a new port on a Bahamian island. (Disney already has one private island port.)If that is what $30 billion can buy, imagine what $60 billion might bring.“There are far fewer limits to our parks business than people think,” Mr. Iger said in an email.“The growth trajectory is very compelling if we do nothing beyond what we have already committed,” he continued, referring to attractions and ships that have been announced but are not yet operational. “By dramatically increasing our investment — building big, being ambitious, maintaining quality and high standards and using our most popular I.P. — it will be turbocharged.”Josh D’Amaro, chairman of the parks division, noted that films like “Coco” and “Zootopia” had not yet been incorporated into the parks in a meaningful way.Todd Anderson for The New York TimesDisney shares fell 3 percent on Tuesday on the news, to about $82. Analysts said some investors had been worried about the company’s ability to generate free cash flow at a time when its television business — traditionally a major generator of cash — has been undercut by streaming services.Disney already has a sizable amount of debt, largely because of the pandemic. The company suspended its semiannual shareholder dividend in 2020 to preserve cash, but is expected to restart dividend payments later this year.“We’re incredibly mindful of the financial underpinning of the company, the need to continue to grow in terms of bottom line, the need to invest wisely so that we’re increasing the returns on invested capital, and the need to maintain a balance sheet, for a variety of reasons,” Mr. Iger said on Tuesday afternoon in a blog post.Disney is expanding the investment after a stretch of trouble in almost all its divisions. Cable television, including ESPN, has become a shadow of its former self, the result of cord cutting, advertising weakness and rising sports programming costs. Disney had a disappointing summer at the box office, with movies like “Indiana Jones and the Dial of Destiny” and “Haunted Mansion” selling sharply fewer tickets than anticipated. The company’s Disney+ streaming service continues to lose money; Mr. Iger has said it will be profitable by fall 2024, but some investors are skeptical.In contrast, Disney’s parks and cruise business has been a bright spot, in many ways propping up the whole company. In the most recent quarter, Disney Parks, Experiences and Products generated $2.4 billion in operating income, an 11 percent increase from a year earlier. Disney Media and Entertainment Distribution had $1.1 billion in operating profit, an 18 percent decline.Spending per guest at Disney parks has increased 42 percent since 2019, in part because of higher prices for tickets, food, merchandise and hotel rooms.An attraction based on “Moana” at Disney World is among those that have already been announced but are not yet open to the public.Todd Anderson for The New York TimesStill, increased investment in theme parks brings increased risk. It is a business that will always be sensitive to factors beyond Disney’s control: swings in the economy, gas prices, hurricanes, earthquakes, tension between the United States and China. Disney has greatly increased security, deploying undercover guards and installing metal detectors, but these teeming resorts — Disney parks attracted an estimated 121 million visitors last year — could become ghost towns if a violent event took place.Josh D’Amaro, chairman of Disney Parks, Experiences and Products, said people who focused on such risks overlooked the resilience of theme park fans. He noted that customers had come flooding back when Disney parks reopened during the pandemic.“Every time there has been a moment of crisis or concern, we have managed to bounce back faster than anyone expected,” he said.Mr. D’Amaro declined to specify how the company planned to spend the $60 billion. But he gave hints, noting that Disney movies like “Coco,” “Zootopia,” “Encanto” and others had not yet been incorporated into the company’s parks in meaningful ways.“Imagine bringing Wakanda to life,” he said, referring to the fictional “Black Panther” kingdom. “In terms of bringing the latest Disney-Marvel-Pixar intellectual property to the parks, we haven’t come close to scratching the surface. And we have learned that incorporating Disney I.P. increases the return on investment significantly.”A rendering of an area adjacent to Disneyland in California that Disney wants to redevelop, adding rides based on movies like “Avatar.”DisneyDisney owns 1,000 undeveloped acres across its existing theme park resorts, Mr. D’Amaro noted. (For comparison, he said, that’s the size of seven Disneylands.) One of the biggest areas of opportunity, he said, involves the original Disneyland, which opened in 1955. If the company can persuade the City of Anaheim to change a plan, adopted in the 1990s, that limits where hotels, parking lots and attractions can be built, Disney intends to redevelop land adjacent to Disneyland, greatly expanding capacity. Disney also plans to turn a parking area south of the park into a themed shopping, dining and hotel district.Disney released a 17,000-page environmental impact study for the project last week. The Anaheim City Council is expected to vote on the changes in mid- to late 2024.How much Disney invests in Florida may depend on the courts, where the company is battling Mr. DeSantis and his allies for control over Disney World’s growth plan. Angered over Disney’s criticism of a Florida education law, Mr. DeSantis in April ended the company’s long-held ability to self-govern its 25,000-acre resort as if it were a county. Disney maintains that prior contracts preserve its ability to control development, however.“We want to keep growing and investing and have ambitious plans in Florida,” Mr. D’Amaro said. “For the benefit of our guests, our cast members and the economy of central Florida, we hope the conditions will be there for us to do so.” He declined to comment further.At the moment, Disney does not plan to build parks in new countries or cities. (In the past, the company looked at building a park in India, for instance, and expanding beyond Hong Kong and Shanghai in China.) Rather, the company will focus on developing new ports for its ships.Starting in 2025, a new cruise ship — the biggest in Disney’s fleet so far, with space for more than 6,000 guests — will be based in Singapore. Disney’s ships have grown increasingly themed, with characters and artwork from franchises like “Frozen,” “Star Wars” and Marvel’s Avengers incorporated into restaurants and entertainment zones.“It’s like bringing a theme park to a new part of the world,” Mr. D’Amaro said of Disney Cruise Line, which has recently been booked to 98 percent of capacity. More
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Fed Meeting: What to Expect on Interest Rates
The Federal Reserve is unlikely to declare victory this week. But investors will watch for any hint that the end to rate increases is coming.Federal Reserve officials are expected to leave interest rates unchanged at their meeting on Wednesday, buying themselves more time to assess whether borrowing costs are high enough to weigh down the economy and wrestle inflation under control.But investors are likely to focus less on what policymakers do on Wednesday — and more on what they say about the future. Wall Street will closely watch whether Fed policymakers still expect to make another interest rate increase before the end of the year or whether they are edging closer to the next phase in their fight against rapid inflation.Central bankers have already raised interest rates to a range of 5.25 to 5.5 percent, the highest level in 22 years. By making it more expensive to borrow to buy a house or expand a business, they are trying to slow demand across the economy, making it harder for companies to charge more without losing customers and slowing price increases.Officials predicted in their last quarterly economic forecast — released in June — that they were likely to make one more rate increase before the end of 2023. They have kept that possibility alive throughout the summer even as inflation has begun to fade meaningfully. But key policymakers have sounded less intent on making another move in recent weeks.The Fed’s chair, Jerome H. Powell, had suggested in June that further adjustment was “likely.” More recently, including during a closely watched speech in August, he said policymakers could nudge rates up “if appropriate.”Jerome H. Powell, chair of the Federal Reserve, said in August that policymakers could nudge rates up “if appropriate.”T.J. Kirkpatrick for The New York TimesFed officials will release economic projections after their gathering this week, which takes place on Tuesday and Wednesday, offering a fresh look at whether most policymakers still think one final rate increase is likely to be necessary. The projections will also show how officials are interpreting a confusing moment in the economy, when consumer spending has been stronger than many economists expected even as inflation has cooled down a bit more quickly.Taken together, the revised forecasts, the Fed’s statement and a news conference with Mr. Powell after the meeting could give the clearest signal yet about how close the central bank thinks it is to the end of rate increases — and what the next phase of trying to fully wrangle inflation might look like.“You’ve had many centrist Fed officials over the last few weeks say: We’re close to where we need to be — we may even be there,” said Michael Feroli, chief U.S. economist at J.P. Morgan.Mr. Feroli thinks that there is a roughly two-thirds chance that policymakers will still forecast another rate move, and a one-third chance that they will predict that the current setting is likely to be the peak interest rate.But even if the Fed signals that interest rates have reached their peak, officials have been clear that they are likely to stay elevated for some time. Policymakers think that simply keeping rates at a high level will continue to weigh on economic growth and gradually cool the economy.Mr. Feroli does not expect officials to start talking too decisively about the next phase — one in which rates come down — quite yet.“They haven’t won the war on inflation, so it’d be a little premature,” Mr. Feroli said.That said, the economic forecasts could offer some hints. Fed officials will release their projections for interest rates in 2024, 2025 and — newly — 2026 after this meeting. In June, their 2024 projections had suggested that officials expected to lower borrowing costs four times next year. The questions is when in the year those cuts would come, and what officials would need to see to feel comfortable lowering rates.Policymakers may offer little clarity on those points on Wednesday, hoping to avoid a big market reaction — one that would make their job of cooling the economy more difficult.If stocks were to shoot up as markets broadly began to anticipate that the Fed-induced financial and economic squeeze was likely to come sooner, it could make it cheaper and easier for companies and households to borrow money. That could speed up the economy when the Fed is trying to slow it down.Already, growth has been surprisingly resilient to the Fed’s high rates. Consumers and companies have continued to spend at a healthy clip despite the many economic risks on the outlook — including the resumption of federal student loan repayments in early October and a possible government shutdown after the end of this month.Consumer spending has been stronger than many economists had expected even as inflation has cooled down a bit more quickly.Karsten Moran for The New York TimesLeftover household savings from the pandemic, a strong labor market with solid wage growth, and various government policies meant to spur infrastructure and green energy investment may be helping to feed that momentum.The resilience could prompt another revision to the Fed’s economic forecasts on Wednesday, economists at Goldman Sachs said: Officials might mark up their estimate of the so-called neutral rate, which signals how high interest rates need to be in order to weigh on the economy. That would suggest that while policy was restraining the economy today, it wasn’t doing so quite as intensely as officials would have expected.The economy’s staying power could also prevent policymakers from sounding too excited about the recent slowdown in inflation.Consumer Price Index increases have cooled notably over the past year — to 3.7 percent in August, down from 9.1 percent at their 2022 peak — as pandemic disruptions fade and prices of goods that were in short supply fall or grow more slowly.The Fed’s preferred inflation indicator, which is released at more of a delay than the Consumer Price Index measure, is expected to have climbed slowly on a monthly basis in August after food and fuel prices are stripped out to give a clearer sense of the inflation trend.The moderation is unquestionably good news — it makes it more likely that the Fed could slow the economy just enough to cool price increases without tanking the economy. But policymakers may worry about fully stamping out inflation in an economy that is still growing robustly, said William English, a former Fed economist who is now a professor in the practice of finance at Yale.If consumers are still willing to spend, companies may find that they can still raise prices to pad or protect profits. Given that, officials may think that a more marked economic slowdown will be needed to bring inflation the whole way down to their 2 percent goal.“The economy stayed stronger for longer than they’d been thinking,” Mr. English said. Given that, Fed officials may maintain that their next move is more likely to be a rate increase than a rate decrease.Mr. English is skeptical that Fed officials think they can cool price increases fully without more of an economic slowdown.“I doubt they are expecting, as their most likely forecast, that they’re going to get an immaculate disinflation,” he said. “I think that is still their base case: The economy really does have to have a period of quite slow growth.” More
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Strike Is a High-Stakes Gamble for Autoworkers and the Labor Movement
Experts on unions and the industry said the U.A.W. strike could accelerate a wave of worker actions, or stifle labor’s recent momentum.Since the start of the pandemic, labor unions have enjoyed something of a renaissance. They have made inroads into previously nonunion companies like Starbucks and Amazon, and won unusually strong contracts for hundreds of thousands of workers. Last year, public approval for unions reached its highest level since the Lyndon Johnson presidency.What unions haven’t had during that stretch is a true gut-check moment on a national scale. Strikes by railroad workers and UPS employees, which had the potential to rattle the U.S. economy, were averted at the last minute. The fallout from the continuing writers’ and actors’ strikes has been heavily concentrated in Southern California.The strike by the United Automobile Workers, whose members walked off the job at three plants on Friday, is shaping up to be such a test. A contract with substantial wage increases and other concessions from the three automakers could announce organized labor as an economic force to be reckoned with and accelerate a recent wave of organizing.But there are also real pitfalls. A prolonged strike could undermine the three established U.S. automakers — General Motors, Ford and Stellantis, which owns Chrysler, Jeep and Ram — and send the politically crucial Midwest into recession. If the union is seen as overreaching, or if it settles for a weak deal after a costly stoppage, public support could sour.“Right now, unions are cool,” said Michael Lotito, a lawyer at Littler Mendelson, a firm representing management.“But unions have a risk of not being very cool if you have five-month strike in L.A and an X-month strike in how many other states,” he added.If the stakes seem high for the U.A.W., that’s partly because the union’s new president, Shawn Fain, has gone out of his way to elevate them. During frequent video meetings with members before the strike, Mr. Fain has portrayed the negotiations as a broader struggle pitting ordinary workers against corporate titans.“I know that we’re on the right side in this battle,” he said in a recent video appearance. “It’s a battle of the working class against the rich, the haves versus the have-nots, the billionaire class against everybody else.”Mr. Fain’s framing of the contract campaign in class terms appears to be resonating with his members, thousands of whom have watched the online sessions.Shunte Sanders-Beasley, a U.A.W. member said, “If we can win back some of the concessions we took, I’m hoping that it’ll be a trickle-down effect.”Cydni Elledge for The New York TimesShunte Sanders-Beasley, a U.A.W. member in Michigan who started working at a Chrysler plant in Indiana in 1999, said she saw the fight similarly.“If you follow history, autoworkers tend to set the tone,” said Ms. Sanders-Beasley, who has served as vice president of her local and backed Mr. Fain’s campaign for the union’s presidency last year. “If we can win back some of the concessions we took, I’m hoping that it’ll be a trickle-down effect.”A successful autoworker strike in 1937, which led G.M. to recognize the U.A.W. for the first time, helped set in motion a wave of union organizing across a variety of industries like steel, oil, textiles and newspapers over the next few years.Labor activists agreed that the current strike could also reverberate across other industries, where workers appear to be paying close attention to the labor actions of the past year. “In organizing meetings, they say, ‘If they can do it, we can do it,’” said Jaz Brisack, an organizer with Workers United who had played a key role in the Starbucks campaign.But the flip side is that the strike could inflict collateral damage that creates frustration and hardship among tens of thousands of nonunion workers and their communities.“The small and medium-sized manufacturers across the country that make up the automotive sector’s integrated supply chain will feel the brunt of this work stoppage, whether they are a union shop or not,” Jay Timmons, the chief executive of the National Association of Manufacturers, said in a statement Friday.Higher wages and gains for rank-and-file workers can be good for the economy. But some argue that Mr. Fain’s and other labor leaders’ aggressive demands could discourage businesses from investing in the United States or render them uncompetitive with foreign rivals.“Mr. Fain has to think about this, too — the long-term financial viability of these three companies,” said John Drake, vice president of transportation, infrastructure and supply chain policy at the U.S. Chamber of Commerce.Even those who welcome the union’s aggressive stance say it is fraught with risk. Gene Bruskin, a longtime union official who helped workers at a Smithfield meat-processing plant in North Carolina achieve, in 2008, one of the biggest organizing victories in decades, said a long strike could disillusion workers if the union came up short on key demands.“If the U.A.W. fails to make any significant gains, particularly on the two-tier stuff, their future could be seriously harmed,” said Mr. Bruskin, referring to a system in which newer workers are paid far less than veteran workers who perform similar jobs.Mr. Bruskin also worried that the union could effectively win the battle and lose the war if the auto companies respond by shifting more production to Mexico, where they already have a significant presence. Shawn Fain, president of the U.A.W., said, “It’s a battle of the working class against the rich, the haves versus the have-nots, the billionaire class against everybody else.”Cydni Elledge for The New York TimesThe tens of billions of dollars in federal subsidies for domestic production of electric vehicles that President Biden has helped secure should limit that shift and help keep manufacturing jobs at home. Many automakers are already locating new plants in the United States to take advantage of the funds.Still, Willy Shih, an expert on manufacturing at Harvard Business School, said the automakers could adjust their operations in ways that undercut the U.A.W. while continuing to produce cars domestically. Automation is one option, he said, as is locating new plants in lightly unionized Southern states.The Detroit automakers have created joint ventures with foreign battery makers outside the reach of the U.A.W.’s national contracts and have sought to locate some of those plants in states like Tennessee and Kentucky. The union is seeking to bring workers at those plants up to the same pay and labor standards that direct employees of the Big Three enjoy, but it has not succeeded so far.Given those threats, the union may feel justified in taking a more ambitious posture toward the automakers. The primary check on shifting work to other states will be the U.A.W.’s ability to organize new plants, especially in the South, where it has struggled to gain traction for years. Experts argued that the union would likely increase its chances of attracting members there if it could point to large concrete gains.“The answer is winning a strong contact here and using it to organize huge groups of autoworkers who are currently nonunion,” said Barry Eidlin, a sociologist at McGill University in Montreal who studies labor.And there are other ways in which being too cautious may be a bigger risk to the union than being too aggressive. Organizers point out that workers are often demoralized when union leaders talk tough and then quickly settle for a subpar deal.Critics of the previous U.A.W. administration accused it of doing just that before Mr. Fain took over this year. “We’d be trying to make sense of how certain things passed in the first place,” Shana Shaw, another longtime U.A.W. member who backed Mr. Fain, said of the concessionary contracts autoworkers were asked to accept over the years.Even Mr. Fain’s habit of framing the fight in broad class terms may prove to be a strategic advantage. A recent Gallup poll found that 75 percent of the public backed the autoworkers in the showdown, compared with 19 percent who were more sympathetic to the companies.The widespread public support suggests that the autoworkers may be operating in a different context from workers in another strike that famously contributed to a loss of power for labor: air traffic controllers’ unsuccessful fight against the Reagan administration in the early 1980s, after which private-sector employers appeared to become more comfortable firing and replacing striking employees.Dr. Eidlin said that while the air traffic controllers failed to court allies in the labor movement, “the fact that Fain and the U.A.W. are messaging more broadly, really trying to build that broad coalition, speaks to the possibility of a different outcome.” More
- in Economy
Striking unions impacting the economy at a level not seen in decades
So far, the United Auto Workers stoppage has impacted just a small portion of the workforce with limited implications for the broader economy.
However, if things heat up and it turns into an all-out strike, bringing into play the 146,000 of those working at Ford, GM and Stellantis, that could change things.
August alone saw some 4.1 million labor hours lost this year, the most for a single month since August 2000.
Potential pay raises have raised the specter that inflation, which has abated recently from 40-year highs, could be stickier as unions fight for higher ground.The auto workers’ strike is the latest in a series of labor-management conflicts that economists say could start having significant growth impacts if they persist.
So far, the United Auto Workers stoppage has impacted just a small portion of the workforce with limited implications for the broader economy.But it is part of a pattern in labor-management conflicts that has resulted in the most missed hours of work in some 23 years, according to Labor Department statistics.
“The immediate impact of the auto workers strike will be limited, but that will change if the strike broadens and is prolonged,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a client note Monday.United Auto Workers (UAW) members on a picket line outside the Stellantis NV Toledo Assembly Complex in Toldeo, Ohio, on Monday, Sept. 18, 2023.
Emily Elconin | Bloomberg | Getty ImagesThe UAW has taken a somewhat novel approach to this walkout, targeting just three factories and involving less than one-tenth of the workers at the Big Three automakers’ membership. However, if things heat up and it turns into an all-out strike, bringing into play the 146,000 union members at Ford, GM and Stellantis, that could change things.
In that case, Shepherdson sees a potential 1.7 percentage point quarterly hit to GDP at a time when many economists still fear the U.S. could tip into recession in the coming months. Auto production amounts to 2.9% of GDP.
A broader strike also would complicate policymaking for the Federal Reserve, which is trying to bring down inflation without tipping the economy into contraction.“The problem for the Fed is that it would be impossible to know in real time how much of any slowing in economic growth could confidently be pinned on the strike, and how much could be due to other factors, notably the hit to consumption from the restart of student loan payments,” Shepherdson said.
Labor hours lost
American workplaces have taken a substantial hit from strikes this year.
August alone saw some 4.1 million labor hours lost this year, the most for a single month since August 2000, according to the Labor Department. Combined with July, there were nearly 6.4 million hours lost from 20 stoppages. Year to date, there have been 7.4 million hours lost, compared to just 636 hours total for the same period in 2022.
Those big numbers have been the result of 20 large stoppages that have included the Writers Guild of America and Screen Actors Guild, state workers at the University of Michigan and hotel employees in Los Angeles. Some 60,000 health care workers in California, Oregon and Washington are threatening to walk out next.After years of being relatively quiescent, unions have found a louder voice in the high-inflation era of the past several years.
“If you’re a corporate CEO and you’re not anticipating labor demands, you’re not tethered to reality,” Joseph Brusuelas, chief economist at RSM, said in an interview. “After the inflation shock we’ve gone through, workers are going to demand more money, given the … likelihood that they’ve lost ground during this period of inflation. They’re going to ask for more money, and they’re going to ask for workplace flexibility.”
Indeed, recent New York Fed data has shown that workers on average are asking for salaries close to $80,000 a year when switching jobs.
In the UAW’s case, the union has asked for demanded a 36% raise spread over four years, similar to the pay gains that automaker CEOs have seen.Inflation impacts
But Brusuelas said that prospective 9% annual UAW increases shouldn’t have a major impact on macroeconomic conditions, including inflation.
Unions have made up a progressively smaller share of the workforce, declining to a record low 10.1% in 2022, about half where it was 40 years ago, according to the Labor Department. Just 6% of private sector workers are unionized, while 33% of government workers are organized.
“Labor strife is going to have a relatively small effect on the overall macro economy,” Brusuelas said. “This isn’t that big of a deal and it shouldn’t come as a shock following such a steep increase in inflation.”
Biden administration officials also are not sounding any alarms yet about the potential economic impact.
In the immediate term, the stoppage won’t show up in the September jobs numbers, at a time when payroll growth is decelerating.
“I think it’s premature to be making forecasts about what it means for the economy,” Treasury Secretary Janet Yellen told CNBC’s Sara Eisen in an interview aired Monday. “It would depend very much on how long the strike lasts and exactly who’s affected by it. But the important point, I think, is that the two sides need to narrow their disagreements and to work for a win-win.” More
