Here’s the gruesome truth of how much Boeing’s 737 Max debacle is expected to hurt the US economy

  • Boeing’s recent decision to halt 737 Max production in January will cut 0.5 percentage points from gross domestic product growth in the first quarter of 2020, JPMorgan chief economist Michael Feroli said Tuesday.
  • The model is Boeing’s best-selling plane, and the production cut will pull GDP growth lower by hitting the company’s inventory growth, the economist said.
  • The production pause could also harm firms in Boeing’s supply chain, as several parts manufacturers rely on the aircraft as a steady revenue driver.
  • Watch Boeing trade live here.

Boeing’s recent decision to pause 737 Max production will cut 0.5 percentage points from gross domestic product growth in the first quarter of 2020, JPMorgan said Tuesday.

The model is Boeing’s best-selling product, and the production cut will have a material effect on GDP by pulling inventory growth lower, chief economist Michael Feroli said in a note.

Feroli estimated earlier in 2019 that a complete production halt would wipe 0.6 percentage points from GDP growth in the next quarter. Boeing has since cut 737 Max production from 52 per month to 42, a shift that accounts for the small adjustment in a hit to GDP growth, Feroli wrote.

Since the production adjustment, the 737 Max hasn’t hit GDP growth. The decline in deliveries to airlines was offset by a buildup in inventories, the economist noted. The company already has 400 undelivered planes in storage.

“Accordingly, the expected drag on 1Q GDP growth should be concentrated in reduced inventory accumulation,” Feroli wrote.

The “production” component of GDP includes investment in inventory or fixed assets.

The pause could also harm firms in Boeing’s supply chain, Feroli added. Several parts manufacturers rely on the aircraft as a steady revenue driver.

Aircraft output JP Morgan

source
JP Morgan

Boeing announced Monday it would halt 737 Max production in January as it looks to clear the plane for commercial service. The FAA called Boeing’s timeline for the model “not realistic” earlier this month, punting the expected date for the plane’s recertification.

The anticipated return of 737 Max production should boost GDP in the future, Feroli said, but Boeing’s announcement lacked a timeline for when the plane would resume commercial flights.

Though JP Morgan’s previous first-quarter GDP growth forecast didn’t account for a pause to 737 Max production, Feroli said the 1.25% projected jump remains intact. The bank already expected “a noticeable deceleration in inventory accumulation,” so it didn’t adjust its expectation lower, the note said.

Boeing traded at $323.95 per share at 10:35 a.m. ET Tuesday, down roughly 1% year-to-date.

The company shed $11 billion from its market cap in the two days since the production halt was first reported by The Wall Street Journal.

The plane manufacturer has 13 “buy” ratings, 14 “hold” ratings, and two “sell” ratings from analysts, with a consensus price target of $384.06, according to Bloomberg data.

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