US railroads, labor union reach tentative agreement | Peter C. Earle on Bloomberg

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AIER economist Peter C. Earle joins Bloomberg Markets with Taylor Riggs and Jon Erlichman to discuss the recent agreement between US railroads and unions, after they reached a deal to avoid a work stoppage which threatened the U.S. economy. Earle explained how railroads fit into a bigger picture of U.S. supply chains, and discussed the economic health of consumers and job seekers. "Typically unemployment and all the bad features of recession tend to happen up to a year after we have the dip in GDP, so there's still a lot of time to figure out what kind of situation we're in," Earle said.

Quotes:

On the railroad agreement: "This [railroad and union] dispute really goes back to 2019. There were a lot of delays and posturing along the way, but the unions got what they wanted . [The agreement] still needs to be approved, but pretty much a major threat to the economy on top of the inflation numbers this week has been averted."

On supply chain fragility: "Over the past few years we've seen virtually every link in the supply chain either bend or break. We still have lingering problems with ocean shipping and trucking, but rail was actually the last one that didn't show any problems. So with the unions, if they went on strike, as the last, most feasible means of land transport, we would have really seen the cost to ship goods rise exponentially. It would have been a huge blow to the economy if that happened."

On collective bargaining: "So most collective bargaining agreements have a cost of living allowance built into them. Typically they involve some use of the CPI or some range within 0.5 of a percent. But we've had a substantial rise within the last year and a half. So I think what you're going to see is that any collective bargaining agreement that comes up, there is going to be a higher risk factor of problems, especially if that industry is significant on a macroeconomic level."

On consumer economic health: "It's a very mixed bag right now. We shouldn't be surprised that the economic numbers look strange because we're coming out a very strange environment with the pandemic. We have a very strong jobs market still; there are still almost 2 openings for every individual looking for a job. In addition to that, consumer sentiment, which was dipping, seems to have rebounded. And we still have a lot of savings; we still have people who have savings from the stimulus payments and that sort of thing. So consumers are okay for now, but that can change very quickly and it has in the past. Typically unemployment and all the bad features of recession tend to happen up to a year after we have the dip in GDP, so there's still a lot of time to figure out what kind of situation we're in."