Boo! UPS Strike Is Stirring the Inflation Ghosts

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UPS hasn't delivered much since the Teamsters went on strike two weeks ago, idling the ubiquitous brown trucks and planes that formerly traversed the country.

Now, however, economists worry that the company, which commands about 80% of America's shipping, could deliver an unwelcome package to the economy: inflation.

This, of course, is the doomsday scenario that is starting to slowly gain adherents on Wall Street. In the so-called miracle economy, labor is a toothless oaf. Now economists have started musing more loudly that if workers manage to wrench concessions from the Brown Beasts,* other workers around the nation might be emboldened to ask for a bigger slice of America's economic prosperity.

"The very visible UPS strike may prove to be a metaphor for what will be happening, under the surface, at companies everywhere," says Ken Mayland, chief economist at

KeyCorp

in Cleveland.

That means workers should be able to demand more from the companies that employ them, a development that could spur higher prices. Higher wages, of course, mean higher production costs, an expense many companies will be tempted to pass on to consumers. And a little more coin in pocket, some say, would prompt a bit of extra spending, which could also goose price tags.

To be certain, labor-led wage scares have surfaced and died in the past two years. As recently as last week workers at a Wisconsin

Wal-Mart

rejected unionization. And

Boeing's

(BA) - Get Report

rich labor agreements have done little to push inflation higher. Even

Fed Chairman Alan Greenspan

has said that workers are so concerned that a new corporate culture of restructuring and downsizing could cost them their jobs, they're reluctant to pipe up for a raise.

But some economists believe the UPS situation is different. For one, UPS is a hugely successful private company that has a history of labor amity. Second, the Teamsters look like they are playing hard -- and the nation's unions have started to rally around them. Third, with labor markets so tight, good replacement workers may not be as plentiful as they were during failed strikes over the past two years. Remember how

Caterpillar

(CAT) - Get Report

so easily shrugged off its strike with replacements?

If the Teamsters start to gain an edge, a new era of demanding workers -- and the inflation it could cause -- would prompt bond yields to rise. That, in turn, would upset the taciturn and sensitive stock market, which has proven vulnerable to fixed-income neuroses as of late.

"Market participants are probably concerned that this could lead to higher wages," says Richard Berner, chief economist at

Mellon Bank

, describing notoriously pessimistic bond traders.

Labor quiet has kept the

Employment Cost Index

, a comprehensive survey of how much workers get paid, reasonably steady even as unemployment has dropped to a thin 4.8%. The ECI rose just 2.8% in the second quarter.

The UPS confrontation also comes as several of the

Federal Reserve's

12 districts are reporting scattered wage pressures. "Labor markets remained tight in much of the District," read the report from the Kansas City Fed in the Fed's most recent Beige Book compilation of anecdotal economic news. "And some companies responded by increasing wages for entry-level workers and certain skilled positions."

And the country's most vigilant inflation hawk, Greenspan, specifically mentioned his concern over the possibility of higher wages in his quarterly

Humphrey-Hawkins

testimony.

"To be sure, since last year, surveys have indicated that the proportion of workers fearful of layoff has stabilized and the number of voluntary job leavers has edged up," Greenspan told

Congress

.

As the days roll ahead, the UPS-inflation tale could gain more currency on Wall Street. What an amazing bull market: The biggest concern in late summer is coming from a

private

company.

*Brown Beasts is a funky phrase for UPS attributed to our very own Holly Hegeman. She pilots the Wing Tips column every Thursday on

TheStreet.com.

This story was originally published Aug. 13, 1997.