The White House and the media are touting the tentative agreement reached last night between the major U.S. rails and their unions to avert a strike. The agreement, if ratified by union members, would help avert a work stoppage that would have crippled supply chains and passenger trains and would have restricted the movement of essential goods to distribution centers and consumers. A rail strike could severely impact a range of industries, from the autos to agriculture to retail, as about 40% of goods that are shipped long distance in the U.S. rely on the nation's rail system. It could also cause disruptions to the energy industry in ways that may lead consumers to pay more for gasoline, natural gas, and electricity. A shortage of essential goods would precipitate price increases, inflation, and significant economic damage if it persisted for an extended period.

Averting a rail strike comes at a price, a 24% compound wage increase over its five-year term, as well as an annual lump-sum bonus payment totaling $5,000. One should not overlook the fact that these wages increases will create more inflationary pressure. Rail freight transportation remains an important part of North American economies. These wage increases will trigger increases in the cost of rail freight transportation. This is not to say that rail workers are not deserving of an increase in wages and benefits. The point is that these increases contribute to the challenges we are all experiencing with inflation and will make it more difficult for central banks to bring down inflation.

The Wall Street Journal reported that “the U.S. consumer-price index rose 8.3% in August from the same month a year ago, down from 8.5% in July and 9.1% in June, the Labor Department said Tuesday. The slower rate of increase reflected falling gasoline prices last month.

Core prices, which exclude volatile food and energy items and are seen as a better gauge of underlying price pressures, rose a notable 0.6% in August from July—double their 0.3% increase in July from June. The core CPI rose 6.3% in August from a year earlier, up from 5.9% in both June and July, reflecting higher prices for housing, medical care and college tuition.

As 2021 draws to a close, many pundits are providing their forecasts for 2022. As I reflect on the past two years, and look ahead to 2022, it is difficult to predict, with certainty, how the New Year is likely to unfold. In fact, unlike prior years, there are more questions than answers. Here are a few items to consider.

Covid-19

Over 200 million Americans and over 20 million Canadians have received their Covid vaccine. Booster shots are now widely available and the eligibility for these shots will be expanded in the days ahead. Vaccines are now available for children. With vaccine, masks and social distancing mandates, many businesses and schools are now open.

Just looking at the traffic on the roads today, as compared to six months or a year ago, life for many is returning to normal, or at least a new and improved state of normal. Early reports on the Omicron virus are suggesting that this mutation may be less dangerous to our health as compared to previous versions. This signals to many that the worst of Covid is behind us.

Fifty-one days after taking office, President Biden signed into law the $1.9 trillion American Rescue Relief Bill, one of the most important pieces of legislation in the past 50 years. The bill is significant in many ways.

It will put money directly into the hands of lower- and middle-income Americans, those most in need of support. The bill directs $1,400 payouts to millions of Americans and continues unemployment checks for millions more as the country pulls itself out of the economic devastation of a pandemic that has killed more than 530,000 of its citizens. As itemized by Eric Levitz in New York magazine, the bill will have a broad range of impacts.

• A family of four with one working parent and one unemployed one will have $12,460 more in government benefits to help them make ends meet.

• The poorest single mothers in America will receive at least $3,000 more per child in government support, along with $1,400 for themselves and additional funds for nutritional assistance and rental aid.

2019 in Review

After the hot freight market and record profits of 2018, many trucking companies added trucks and drivers to keep up with the expected shippers’ capacity demands in 2019. An index published by the Institute for Supply Management dropped to 47.2 in December, the lowest reading since June 2009 and the fifth straight month of contraction. A reading below 50 indicates the manufacturing sector is contracting. In 2019, excess truck capacity was met with a “manufacturing recession.”

One key trade flow indicator that maritime experts and world economists examine, is the volume of the eastbound trans-Pacific trade lane — the regional trade lane for ocean containers that originate in East Asia and end in the United States. This trade lane accounts for 40% of the world’s gross domestic product (GDP).

The flow of containers in this trade lane has marked a plunge in weakening relations. U.S. exports out of the Port of Los Angeles (the end of the lane) is down 12 consecutive months. China imports have dropped significantly. The ripple effect of this change not only hit the maritime system but the trucking and rail systems as well since there was less freight to move.

Whether you obtain your news from TV, newspapers or social media, it is hard to escape the drumbeat of downbeat updates about the North American and global economies. The negative news is puzzling to those people who monitor some of the leading, and still positive, economic indicators.

As noted in a recent paper by Jim Allworth, Co-Chair of the RBC Global Portfolio Committee, 5 of the 6 most commonly tracked economic indices on the bank’s Recession Scorecard are still positive. These include:

Unemployment claims