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The West Coast port strike could shave 1% off US GDP

Feb 22, 2015, 17:50 IST

The West Coast port slowdown could reduce fourth quarter GDP by 1%, according to Deutsche Bank's Joe LaVorgna.

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Work has slowed down and ports have become congested amid a nine-month contract dispute between the International Longshore and Warehouse Union, which represents 20,000 workers, and the Pacific Maritime Association.

Ports may shut down if an agreement is not reached. And US exports are already slowing.

In a note Wednesday, LaVorgna writes that softer exports in November and December amount to an unprecedented annualized decline of -18.3%.

"We believe that the pronounced slowdown in the exports of goods is largely the result of labor strife affecting West Coast ports rather than anything primarily associated with macroeconomic factors," LaVorgna writes, adding that this analysis is based on commentary from various port officials in the business press.

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LaVorgna added:

"If the current slowdown in port activity persists or even worsens, as a strike is possible, the negative impact on measured GDP from a widening trade deficit may be even larger than last quarter."

LaVorgna, however, doesn't see any long-term effects from potential shutdowns.

The economy grew at an annual rate of 2.6% in the fourth quarter, down from 5.0% in Q3 and less than the 3.0% that was forecast.

And an outright strike by port workers could drag down GDP even further.

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LaVorgna notes that the slowdown has hurt outbound traffic more, as shown in the chart below:

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