Volume 27, Issue 38
Sep 18, 2023.


Sep 15

Sep 8


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Source: Globe & Mail


Will the Auto Strike Drive the Economy off a Cliff?

Sal Guatieri

BMO Senior Economist

The first strike by North American auto workers in four years began Friday with the UAW announcing walkouts at three plants, while threatening wider-scale action. This is the first-ever strike simultaneous against all three major automakers, though it is currently limited to less than 13,000 workers. Depending on duration and scope, the strike could derail the expansion and complicate the central bank's already-tricky job of piloting a soft landing.

The economic impact will hinge on how long the strike lasts and how many plants are closed. The last major strike was in October 2019 when 46,000 GM workers walked off the job for 40 days. Real GDP turned slightly negative that month and, led by big declines in motor vehicle production and sales, downshifted sharply to a 1.8% annualized rate that quarter from 3.6% in the prior quarter. In 1998, a GM strike lasting 54 days was estimated to have cut one-half percentage point from annualized GDP growth in the second quarter of the year.

If ramped up to cover all 146,000 workers at the Big Three, a strike could cause more damage than the previous two major walkouts. Auto manufacturing and retail account for just under 2% of U.S. industry GDP, with the Big Three accounting for less than half of national sales and production. Anderson Economic Group estimates a full strike of over 140,000 workers lasting 10 days would lead to economic losses of $5.6 billion, based on lost wages and profits in the industry and multiplier effects on other sectors. So, a full strike could shave Q3 GDP growth by an annualized 0.6 ppts, though the very limited action currently underway suggests a much smaller impact, likely less than 0.2 ppts. However, if a strike of all 146,000 workers persisted through year-end, it could take a 3-ppt chunk out of annualized Q4 growth. While production would come roaring back after the strike ended, the near-term hit would be severe, likely resulting in an outright contraction in the economy.

The strike won’t show up in the September jobs report, as the roughly 12,700 workers currently off the job were paid for at least part of the survey period, and thus will be included in the payroll numbers. If the strike lasts through the October survey period, however, payrolls would be affected. The household survey, which tallies the unemployment rate, won’t be impacted as workers on unpaid leave are still classified as employed.

Canada is also gearing up for a potential strike starting early next week at Ford. The auto industry accounts for a similar share of GDP as in the U.S. and the Big Three have roughly 18,000 hourly workers. Given the tightly integrated nature of auto production in the two countries, the impact could be equally severe and concentrated in Ontario. With Canada’s economy already on the cusp of recession, the strike could lead to a deeper downturn. In that event, the Bank of Canada would likely refrain from further rate hikes, at least until the strike ended.

A long strike could make already expensive automobiles even dearer. The initial price push would come from production cuts that severely drain recently improved inventories. After the strike settles, some of the increase in labour costs could get passed along to buyers, depending on demand conditions and industry profitability.

For the Fed, the economic turbulence from the strike would complicate its ability to balance demand and supply to restore price stability, thus lowering the odds on achieving a soft landing. While a short-lived walkout would be a mere speedbump for the expansion, a longer lasting and wide-scale strike could send the economy temporarily over the edge. Moreover, while the inflationary impact of higher auto prices could be readily discerned, and thus accounted for in policy decisions, any upward thrust to inflation expectations (combined with recent unwelcome pressure from rising oil prices) could spur a policy response that risks a much bumpier landing. Tighten your seatbelts.


Frank and Mark.


Source: Globe & Mail, BMO Capital Markets, Bank of Canada, Bloomberg.



Equity markets gave up solid gains late this week alongside a decent run of economic data, but another move higher in oil prices. The S&P 500 dipped 0.2%, led by banks and utilities, while industrials and technology lagged. The TSX, however, churned out a solid 2.7% gain as materials, banks, industrials and utilities all posted gains above 3%.

The TSX’s outperformance last week was certainly helped by the rally in oil prices. WTI closed the week above $90 for the first time in almost a year (November 2022), and has now bounced more than 30% from late-July levels. Considering the inflation battle still going on, this might be considered bad news for equities, but that hasn't totally been the case. The S&P 500 has pushed ahead by 1% in the past month, with consumer discretionary (+3.4%) second in line behind energy (+6.1%). Meantime, the jump in oil has greased Canadian stocks, which have begun to outperform again, up 3.2% in the past month. All sectors have posted gains over that period.

YTD, the TSX is up 6.38%, and the benchmark 10-year yield ended the week to yield 3.74%.


U.S. & Global

The economic data last week were mixed, headlined by the August U.S. CPI report. Headline inflation accelerated for a second month to a 3.7% y/y pace, slightly stronger than expected, with a jump in gas prices playing a big role. Base effects also played a role when compared to soft readings through last summer. Core inflation cooled to 4.3% y/y, the softest pace since September 2021, with both core goods and services price momentum slowing. The monthly gain was manageable 2.8% a.r., while the 3-month trend sat at 2.6%.

The Fed’s ‘supercore’ measure also edged down to 3.9% y/y, but maybe the most hawkish aspect of this report (assuming we’re looking past the pop in gas prices) was a 4.5% annualized jump in that supercore measure in August. That said, both the 3- and 6-month annualized rates remained below 3%. All in, not a lot of reaction from the equity market after sifting through the moving parts.

Elsewhere, retail sales rose a solid 0.6% in August, though that was flattered by the jump in gas prices. Sales excluding gas were up 3% y/y in the month, trailing inflation. Industrial production gained 0.4% in August, and even the New York regional factory survey showed a pop back into expansion territory on the back of new orders. No signs of recession out there this week

YTD, the DJIA is up 4.44, the NASDAQ is up 30.97%, and the S&P 500 is up 15.91%.  The 10-year Treasury yield ended the week to yield 4.33%.


Source: BMO Capital Markets


The Good: Wholesale Trade Volumes (ex. Petroleum)+0.2% (July);Manufacturing Sales Volumes +0.9% (July); Household Debt-to-Income -3.6 ppts to a seasonally adjusted 180.5% (Q2)—but still high; MLS Home Prices +0.4% y/y (Aug.); New Motor Vehicle Sales +9.5% y/y (July); Global Investors bought a net $11.6 bln in Canadian securities (July).


The Bad: Existing Home Sales -4.1% (Aug.).

The Good: Retail Sales +0.6% (Aug.)—but mostly due to 11% jump in gas prices; Industrial Production +0.4% (Aug.); Budget Balance swung to a $89.3 bln surplus (Aug.)—but wholly due to change in student loan repayment plans; Empire State Manufacturing Survey +5.2 pts to an ISM-adjusted 51.1 (Sep.).


The Bad: Consumer Prices +0.6% m/m (Aug.)—and core climbed an above-expected +0.3%; Producer Prices +0.7% m/m (Aug.)—core +0.2%; Import Prices +0.5% (Aug.); NFIB Small Business Optimism -0.6 pts to 91.3 (Aug.); Initial Claims +3k to 220k (Sep. 9 week); U of M Consumer Sentiment -1.8 pts to 67.7 (Sep. P)—but inflation expectations step down.


20 rattlesnakes found inside garage in Arizona home

MESA, Ariz. — An Arizona man called a snake removal company after seeing what he thought were three rattlesnakes lurking in the garage of his Mesa home. He was wrong.

There actually were 20 snakes — five adult western diamondback rattlers and 15 babies. One of the adult snakes also was pregnant.

Snake wrangler Marissa Maki found most of the rattlers coiled around the base of a hot water heater in the unidentified homeowner’s cluttered garage Tuesday.

“That is a lot of snakes. I’m not going to lie. This is crazy,” Maki said in a YouTube video recorded by the company, Rattlesnake Solutions.

The western diamondbacks, with their distinctive triangular-shaped heads, are found throughout the Southwest. And though their venom is far less toxic than other rattlesnake species, they still require care when being handled.

Maki used tongs to pick up each snake before dropping them into large plastic buckets and relocating them to a natural habitat in a desert area.

“This is our record for the most rattlesnakes caught in one call!” said company owner Bryan Hughes.

The number could have been higher. Hughes said several shedded skins were found in the garage, indicating as many as 40 snakes may have lived there at some point.

“We’ll never know how many rattlesnakes have come and gone over time,” he said.

Rattlesnake Solutions made headlines in July when the company successfully removed a non-venomous coachwhip snake from a Tucson home. Their 20-second video showed that 3- to 4-foot (roughly 1-metre) snake being plucked from a toilet bowl and hissing straight at the camera.