737 Max’s Economic Threat
Could cut up to a half-point from GDP growth for early 2020
Boeing’s decision to halt production of its staple 737 Max planes is delivering a fresh blow to an already battered manufacturing sector, the weakest spot in a slowing U.S. economy.
And the ripple effects will be wide enough to take a measurable bite out of economic growth early next year if the aerospace giant can’t win regulatory approval to restart production of the plane.
Economic forecasters project the stoppage could cut up to a half-point from GDP growth in the first three months of 2020 at a time when its rate already may be dipping below 2%.
Worse, Boeing’s skid will compound manufacturing’s woes just as the industry looks to be finding firmer footing . The sector slid into a technical recession in the first half of the year and intensified this fall - pain that was particularly acute in Midwestern swing states that could decide the 2020 presidential election.
The announcement extends “far beyond” Boeing’s own business, Joseph Brusuelas, chief economist at accounting firm RSM, wrote in a note. “The damage will ripple throughout the economy, affecting everything from inventory channels, factory orders, industrial production and, ultimately, headcount among Boeing’s vast network of suppliers.”
That could lead to an even greater hit than the 0.5% cut to GDP several economists are projecting next quarter, according to Capital Economics senior U.S. economist Michael Pearce. “It appears likely that at least some of the workers at the more than 600 smaller companies in the supply chain will be furloughed or laid off as a result of the decision,” Pearce wrote in a note. “Suppliers may also put on hold investment plans. The longer the shutdown persists, the more likely that is, delivering a broader hit to consumption and investment growth.”
The supply chain involved in making each 737 Max is sprawling, incorporating parts from Japan, Korea and Sweden, but also Washington state, Kansas, Utah and South Carolina.
It’s not just Boeing suppliers suffering from the company’s mess - its customers are, too. Southwest Airlines, the nation’s largest buyer of the planes, “will be pulling approximately 300 flights a day from a peak-day schedule in excess of 4,000 flights,” The Washington Post reports. “Customers who have booked these flights will be notified and reassigned to other planes. Last week, American Airlines extended its 737 Max cancellations until early April, after the Federal Aviation Administration said it wouldn’t approve the aircraft’s return for the remainder of 2019.”
December is typically a red-letter month for the company. Instead, a federal ban on delivery of new Max jets on the books for nine months, led the company to its worst quarter in its history earlier this year, as it booked $3.38 billion in losses.