Boeing 737 Max woes to take bite out of US economy

The 737 Max's production halt could erase 0.5 percentage points from US GDP

Boeing's decision to halt production of its troubled 737 Max aircraft could have big implications for the U.S. economy.

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The move delivers "a big hit to the manufacturing sector just as prospects were beginning to brighten,” wrote Michael Pearce, chief U.S. economist at London-based Capital Economics.

The shutdown would reduce output of commercial aircraft by about $25 billion annually and might shave half a percentage point from first-quarter economic growth if it persists through March. The U.S. economy expanded at a 2.1 percent annualized rate in the third quarter, according to a revised estimate from the Commerce Department on Nov. 27.

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Pearce says the U.S. economy will experience a boost when “Boeing is able to ramp production back up,” which he concedes may not happen until the second half of 2020. Boeing had previously projected the jetliner would return to the skies before the end of this year.

The planemaker's subsequent decision to halt output -- which had already been lowered because it was unable to ship new Max aircraft to customers -- comes at an inopportune time for President Trump, who wants as strong an economy as possible as he seeks four more years in the White House.

Still, the president believes passenger safety takes priority, White House adviser Kellyanne Conway told reporters at the White House. "Boeing knows the president is watching; he's met with them," she said.

A Boeing 737 MAX 8 sits on the assembly line at the company's plant in Renton, Wash. (AP Photo/Ted S. Warren, File)

Boeing already had about 400 Max jetliners in storage when it announced the production halt, which begins in January. The plane has been grounded since March 10, following two crashes over a five-month period that left no survivors.

Boeing says its decision is the “least disruptive to maintaining long-term production system and supply-chain health,” adding that affected employees will continue to perform 737 Max-related work or be temporarily reassigned to other teams. The planemaker continues to work with airline regulators on a patch to anti-stall software linked to the crashes. 

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UBS analyst Myles Walton thinks the relocation of about 5,000 employees suggests a "modest" shudder that will be longer than the 14 days afforded by a furlough but give the planemaker time to avoid more-disruptive layoffs. He reduced his 2020 delivery forecast from 650 to 570 planes, which he says will shave $4.36 per share from full-year earnings and $4 billion from annual revenue.

Boeing plans to provide financial information about the impact of the production stoppage alongside its fourth-quarter results, which are due out in late January.

Wall Street analysts surveyed by Refinitiv are expecting Boeing to report a fourth-quarter profit of $1.12 billion, or an adjusted $1.91 a share, on revenue of $21.24 billion.

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Boeing shares have tumbled 22 percent since the 737 Max was grounded in March. The shares have still gained 1.4 percent this year, underperforming the S&P 500’s 27.5 percent increase.