The United States economy is suddenly staring down an array of new and potentially damaging crises, with tensions flaring in the Middle East, port workers striking on the East and Gulf Coasts and several states grappling with fallout from a devastating hurricane.
The events hit just as American policymakers were gaining confidence that they had successfully tamed inflation without pushing the economy into a recession and as polls and consumer surveys suggested that Americans’ sour economic mood had begun to improve. But in just a week, new risks have emerged.
The economy now faces the prospect of an oil price spike, new supply chain disruptions and the aftermath of a storm that could inflict more than $100 billion in damage upon large swaths of the Southeast.
“There’s new uncertainty,” said Joseph E. Gagnon, senior fellow at the Peterson Institute for International Economics. “If we lose oil output in the Middle East, if the ports are not functioning, then both are inflationary.”
That uncertainty is arriving just weeks before a presidential election in which the economy — in particular, inflation — is one of the biggest factors on voters’ minds and less than a month after the Federal Reserve began cutting interest rates from more than a two-decade high. The central bank has gained confidence that inflation is coming back to its 2 percent goal, but has been wary about the labor market weakening.
Even before the new risks emerged, the International Monetary Fund was projecting that the U.S. economy would slow next year.
The escalation of the conflict in the Middle East is the most worrying scenario for the world economy. Economists have warned for nearly a year that if the fighting between Israel and Hamas in Gaza became a regional war, it could cause an oil price shock that could reignite inflation around the globe.
The World Bank said last October that its worst-case scenario was an outcome similar to the 1973 Arab oil embargo, which took place during the Arab-Israeli war. A disruption of that severity could remove as much as eight million barrels of oil per day from the market and send prices as high as $157 per barrel.
This week, oil prices jumped more than 8 percent after Iran launched nearly 200 missiles at Israel, which vowed to retaliate. They surged on Thursday after President Biden, when asked if he would support an Israeli strike on Iran’s oil facilities, said: “We’re discussing that. I think that would be a little … anyway.”
Economists are watching the development closely as they consider updating their forecasts.
“So long as the conflict remains contained in the Middle East, the primary impact on the U.S. economy will likely be transmitted through energy prices,” said Michael Feroli, chief U.S. economist at J.P. Morgan.
Analysts at Capital Economics noted on Wednesday that Iranian oil constituted just 4 percent of global supplies but that disruptions to its output could have a significant impact on prices. That could be amplified if there are disruptions at the Strait of Hormuz, through which much of the region’s oil and gas are shipped.
They suggested, however, that Saudi Arabia could ramp up production to make up for lost Iranian oil and said oil prices would most likely have to rise to $90 per barrel from the current price of about $75 for central banks to start worrying about inflation.
“Crucially, it would also be how long this is sustained for it to really move the needle for central banks,” David Oxley, chief climate and commodities economist at Capital Economics, said in a briefing. “For that to happen we’d really have see a much bigger escalation in hostilities.”
Omair Sharif, founder of Inflation Insights, said that as a rule of thumb, a $10 rise in the cost of a barrel of oil translates to a 24-cent rise in the cost of a gallon of gasoline, which in turn would lift the monthly Consumer Price Index measure by 0.3 percentage points.
“It could lead to second-order effects like higher airfares and higher diesel costs that boost the prices of some goods, but you’d need to see a sizable and persistent increase in oil for that to materialize,” he added in an email.
The other economic concerns in the United States are the effects of Hurricane Helene and the port strike.
According to AccuWeather, the damage and economic loss from the storm, which dumped more than 40 trillion gallons of rain, could total between $145 billion and $160 billion. That could hurt consumer spending in states such as Alabama, South Carolina, Georgia, Florida, North Carolina, Virginia and Tennessee.
There could also be a temporary slowdown in government revenues. The Internal Revenue Service has given businesses and individuals in hurricane-hit areas extra time to make tax payments.
While storms tend to have little impact on overall economic output, new cracks in the nation’s supply chain would be a different matter.
After labor negotiations between an alliance representing port employers and the International Longshoremen’s Association union faltered this week, the group’s 45,000 port workers went on strike.
If it lasts more than a few days, the strike, which has halted almost all activity across East Coast ports, will also be painful for the economy, as it disrupts shipments of furniture, automobiles, produce, building materials and medicines.
The striking ports on the East and Gulf Coasts — which include 14 major ports and a host of smaller ones — are responsible for moving about a quarter of American imports and exports.
But certain industries that import from the Caribbean, South America and Europe are much more heavily exposed. East Coast ports handle the imports of 71 percent of America’ cars and motor vehicles, 97 percent of certain medicines, 81 percent of America’s coffee and plywood, and three-quarters of the country’s bananas and wine, according to government data.
Samuel Tombs and Oliver Allen, economists at Pantheon Macroeconomics, said supply chains had enough flexibility such that a one-week strike would have a negligible impact on the American economy. Brief strikes by workers on the West Coast in 2002 and 2015 had no discernible impact.
But anything longer than a weeklong strike would weigh on the manufacturing and retail sectors, and cause those businesses to shed jobs in the coming months, they predicted. Automakers would eventually run out of certain products, and shortages could come sooner if consumers engage in panic buying, they said.
“The economic costs will increase exponentially with every passing day of the strikes beyond the first week or so,” the economists wrote.
Economists at Goldman Sachs also said in a note Tuesday that a longer strike would force U.S. factories to scale back production, resulting in a bigger drag on the economy. A full 10-day shutdown of the ports would result in a 0.2-percentage-point hit to fourth-quarter gross domestic product, they predicted.
Depending on how long the strike lasts, the disruptions could also filter out through other ports and sea lanes, as companies reroute their shipments to bypass the East Coast. Ports on the West Coast have been preparing to handle spillover capacity.
The Biden administration has been closely monitoring the potential supply chain implications of the port strike, and officials have said they do not expect there to be an immediate impact on supplies of energy, food or medicines.
“The Supply Chain Disruptions Task Force is up and running — and is prepared to respond swiftly to help minimize potential disruptions in the event of a prolonged strike,” said Robyn Patterson, a White House spokeswoman.
If the standoff is protracted, the political fallout will also be substantial.
Vice President Kamala Harris said this week that she stood with the longshoremen, who she argued deserve their “fair share” of the profits made by foreign-owned shipping companies.
Former President Donald J. Trump blamed the Biden administration for failing to help the two sides forge an agreement and said the dispute reflected the pressure that workers had been under from inflation. He warned that an extended strike would only make things worse.
“It’s a devastating event for the economy,” Mr. Trump said in Wisconsin on Tuesday. “It’s also devastating for inflation because everything is going to cost more because of it.”
Jeanna Smialek and Danielle Kaye contributed reporting.
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