Weekly Reports | Sep 15 2023
US autoworkers threaten to strike; why there’s value in supermarkets; Australia economic slowdown; China’s tepid stimulus; upside in gold.
-The economic impact of a US autoworkers strike
-The outlook for Australian Food & Liquor
-Australia’s growth outlook and what’s needed from China
-M&A the next big thing among gold miners
By Greg Peel
Working for the Man
There are four distinct risks causing angst on Wall Street at present: Rising oil prices, rising bond yields, another Congressional circus ahead of an end-September budget deadline, when the US government will run out of money (again), and a threatened strike by US autoworkers.
US autoworkers for the Big Three of General Motors, Ford and Stellantis (Chrysler) have threatened to go on strike if they don’t get a 40% pay rise over four years, improved retirement benefits, and a shorter standard work week.
If 146,000 workers go on strike, US jobs growth may well turn negative, and a -30% decline in auto production would result. This would knock -0.2-0.3% off US GDP, Oxford Economics calculates, over the duration of the strike. And it would thus impact on September industrial production and October non-farm payrolls.
The dispute come on the heels of a new contract won recently by workers at United Parcel Service of America Inc (UPS), who are represented by the Teamsters (truckers) union. It’s beginning to look a lot like 1970s Australia.
Unions are gaining more traction, but with only a small fraction of workers members of unions, Oxford thinks the impact of organised labour on wages and inflation will remain limited for now.
Assuming the strike ended within 4-6 weeks, there would probably be enough time for output to rebound before the end of the quarter, meaning the impact on December quarter GDP would be negligible. A more lasting risk is a prolonged strike that would disrupt the recovery in auto supply chains, lending an upside risk to the economists’ inflation forecast.
There is still time for negotiation with the auto companies but as they are acting individually, there could be a strike at one or two of the Big Three.
Clean-Up Aisle Three
Australia’s Food & Liquor sector, these days coming under the label of FMCG (fast-moving consumer goods) sector, has underperformed the ASX100 some -9% over the past six months, despite what Jarden considers one of the most favorable trading backdrops in over 15 years which, in prior cycles, led to over 8% relative sector outperformance.
Why? Sales are strong, noted Jarden, the market is rational and balance sheets are sound.
Coles Group ((COL)) did suffer from weaker FY23 margins due to higher operating costs, but Woolworths Group ((WOW)) managed to increase margins. Shoppers are “trading down” to cheaper products due to the cost of living, but volumes remain sound. Endeavour Group ((EDV)) did see lower retail sales while managing to maintain margins.
Coles also suffered from an increase in shoplifting, while Woolies did not.