Daily Management Review

A Temporary Impact Of US Economy Likely Due To Boeing’s 737 Production Halt


A Temporary Impact Of US Economy Likely Due To Boeing’s 737 Production Halt
Analysts believe that the temporary halt in the production of its 737 Max planes by United States based Boeing will only deal a partial blow to the US economy. This is because currently there is inherent strength in the economy which is on a record expansion path compared to the time when the aircraft was grounded globally in March this year.
In recent months, the largest economy of the world has been able to ward off fears of a recession and this is the background of the announcement of the decision by Boeing for the temporary suspension of production starting next month. Analysts and economists noted that the US economy’s growth projections were stable following the announcement of the phase one of the trade deal with China and a positive outlook of global markets after the easing of the trade tensions. Other positive factors included that end of uncertainty over Brexit following the conclusive victory of UK Prime Minister Boris Johnson and three interest-rate cuts during the year by the US Federal Reserve to boost growth.
According to the estimates of Andrew Husby, Bloomberg Economics researcher, the US economy is likely to see a deletion of 1 percentage point at most from its gross domestic product growth in the first quarter next year. On the other hand, a prediction that about 0.5% from first-quarter growth would be wiped off because of the Boeing decision was made by JPMorgan Chase & Co. chief US economist Michael Feroli. He added that a resumption of production is also likely to boost US economic growth when Boeing decides to restart 737 Max productions.
And for the US economy that totals of a GDP of $21.5 trillion, such a reduction will be miniscule in the long run even though it could be noticeable in the immediate time period.
“Boeing is a big company, big exporter, big manufacturer, and this is their most important product, but that doesn’t move the needle on full-year GDP,” Feroli said in an interview. “It’s just an indication of the size and breadth of the economy. It’s hard for one company to leave a lasting imprint.”
It is expected that growth for the US economy for 2019 will be at around 2.2 per cent while that for 2020 will be about 1.8 per cent.
“Assuming further production cuts — including across suppliers — and a halt to inventory accumulation, the impact on GDP in the first quarter could conceivably approach a 1 percentage point drag on the growth rate,” Husby said.
He said that it is likely that the Institute for Supply Management manufacturing reports, Fed industrial production data, and government figures on durable goods would be the areas where the impact of the production halt will be felt most.
However analysts also warned that it was important to note that Boeing is unsure about when regulators would allow the 737 Max planes to fly again which makes the production halt an open ended one. This will result in making an accurate estimation of the impact on the supply chain a very difficult task.