A Looming Rail Strike Could Slow the U.S. Economy - AGF Perspectives

Insights and Market Perspectives

THE U.S. ECONOMY still looks likely to muddle through the rest of the year without a clear recession, but there’s little room for error — such as a railroad strike, which could begin by this Friday.

WITH TWO KEY UNIONS holding out, railroads already are pre-emptively cutting back on passenger and freight service. There’s no way that the trucking industry — which is suffering from an acute labor shortage — can make up the difference on freight.

EVEN A BRIEF STRIKE would disrupt the economy, so President Biden and other Democrats have gotten involved. Their efforts thus far have failed to reach a compromise on issues such as sick leave and penalties for missing work.

A RAILROAD STRIKE — the first in about three decades — is the last thing Biden and the Democrats need, just ahead of the fall elections. Earlier this summer, Biden imposed a 60-day cooling off period that ends at 12:01 this Friday.

THE PRESIDENT DOESN’T HAVE AUTHORITY to impose another cooling off period. Congress could intervene, but that looks unlikely any time soon. Amtrak says disruptions will start today as it cancels long-distance service.

THE FREIGHT INDUSTRY has warned that a strike would shut down 30 percent of the country’s freight and “halt most passenger and commuter rail services.”

IN ADDITION TO HUGE PASSENGER CUTBACKS, a strike also could have a significant impact on a several industries — energy, automobiles, agriculture and retail — which depend on freight to transport products from ports to warehouses and distribution centers.

RAIL ACCOUNTS FOR ABOUT 28 percent of U.S. freight, but some industries rely on it very heavily. For coal producers, railroads are the No. 1 mode of transportation.

A PANEL APPOINTED WHEN THE COOLING OFF PEERIOD BEGAN endorsed a 24% pay increase over the next five years, plus cash bonuses. But several bitter issues persist over requiring engineers and conductors to be on call for seven days a week, with no paid sick leave.

FOR THE PRO-UNION BIDEN, this represents a major test. He needs a quick settlement, as does the beleaguered Transportation Secretary, Pete Buttigieg, who has taken heat all summer for airline flight cancellations and delays.

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A Looming Rail Strike Could Slow the U.S. Economy - AGF Perspectives
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