Long Gm Strike is a Threat to National Economy

By: Evander Klum

The strike against General Motors will affect delicate data needed to assess the result of a housing slope and credit squeeze, but the magnitude of the walkout posed on the national economy will greatly depend on how long the strike will last.

The strike was declared at 11 am on Monday and the talks resumed the afternoon of the same day. According to automotive industry analysts, it's a sign that GM and the United Auto Workers can resolve disagreements on job-security and benefits properly. GM wanted to lower down the labor costs to be in line with their Asian competitors such as Toyota (creates Lexus vehicles with ), Honda, Mazda and others.

According to economists, if the strike will just go for days rather than weeks or months, the economy of the United States will suffer little damage. But a long term strike like that of in 1998, it can be disastrous to an economy already suffering from housing downturn and credit market unrest.

"If the strike lasts a month or longer, it could take 1 percentage point off of real GDP (gross domestic product) in the fourth quarter, or more, even if activity ramps back up in December," said David Rosenberg, analyst at Merrill Lynch.

It will be a great blow to the forecasted little 2.1 percent gain in real fourth-quarter GDP according to the Blue Chip consensus forecast.

"Lost income can also have a negative impact on consumer outlays in the months after the strike resolution since the income lost during a strike is gone permanently," Rosenberg said.

Last Monday was the second national strike by the UAW against GM following the one in 1970.

Normally, striking workers are not subjected for jobless benefits but those who cannot work due to a strike have these benefits. With the 73,000 workers that walked out of GM's plants and warehouses, the government's tally of filing claims for jobless benefits is expected to grow in huge numbers.

The strike came at the time when investors are closely watching employment data. Talks for recession had been strong and the Federal Reserve had been analyzing economic reports to detect signs that industries had been cutting jobs to adapt to tightening credit and falling home prices.

"Should the GM strike last more than a few days, the strike will lead to layoffs in supplier industries and would have a noticeable effect on upcoming economic data," says a note from JPMorgan analysts to their clients.

"This would complicate the interpretation of economic data at a time when the markets and the Fed are keenly interested in the effects of recent credit tightening and house price declines on the pace of economic activity," they added.

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