Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.
Today's bonus chart returns to our usual framework, setting aside the deep dive into topics like oil and toilet seats from yesterday. We're spotlighting two key issues today: the unemployment claims data and the United Auto Workers strike, which we believe holds significant implications for the economy.
First, the claims data. The employment market, at least on the surface, remains very tight. For the week ending September 9, the preliminary number for seasonally adjusted initial claims stood at 220,000, marking a rise of 3,000 from last week's updated figure. The figure for the prior week was revised upward by 1,000, changing it from 216,000 to 217,000. The 4-week rolling average came in at 224,500, down by 5,000 from last week's adjusted average. This previous week's average was also updated, increasing by 250 from 229,250 to 229,500.
Second, the UAW strike. As the clock struck midnight EST (aka normal business hours for Tier1 Alpha), the United Auto Workers union began their strike. This move will touch all three major manufacturers: GM, Ford, and Stellantis. Employees exited facilities in Missouri, Ohio, and Michigan. The UAW has a reserve fund of $825 million, which workers can tap into, depleting at an estimated $70 million per week. That's roughly under $500 weekly in strike compensation for the 145,000 workers. While regulations vary across states, it's unlikely that this will be reflected in unemployment claims data as eligibility varies. Only 12,700 of the 145K workers are participating, but this number will snowball. The union's demands include a 40% salary increment, 40 hours of pay for a 32-hour workweek, alterations to medical benefits, and reduced reliance on temporary labor.
This situation holds significance for several reasons. In 2019, GM faced a comparable strike that lingered for five weeks, costing them a hefty $3.6 billion. If the UAW's demands are met, labor costs would practically double. All three companies had plans to introduce various EVs this year, but those initiatives will now be halted. This situation bears multiple political implications, especially with the U.S. aiming to enhance domestic manufacturing while China faces reduced capacity. Currently, much of the new car production in the U.S. has shifted to non-union states like Alabama, Tennessee, Kentucky, and Texas. As baby boomers step into retirement and with the rise of Zoomers and Gen X'ers, labor gains more leverage on pricing. If the strike extends beyond three weeks, it's poised to become a significant concern, accelerating a recession.
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