Red Alert : Boeing is Dragging Down The U.S. Economy

Boeing is dragging down the U.S. economy. The decision on whether to let the 737 Max fly again may yet be an economic turning point. The grounding of the 737 Max jet after two tragic crashes have quietly lowered U.S. growth, reduced productivity, and trimmed earnings at a number of American companies. Boeing is no ordinary company. It is the largest manufacturing exporter in the U.S. and a very large private employer. Its products cost hundreds of millions of dollars and require thousands of suppliers. It is no surprise that benching Boeing's fastest-selling aircraft is having ripple effects throughout the economy. Welcome to The Atlantis Report. 737 MAX Orders Make Up 80% of Boeing's Order Book America’s largest jet maker . The 737 MAX crisis at Boeing Co., one of the nation's biggest publicly traded companies with a market capitalization over $200 billion, risks dragging down a weakening U.S. economy. Many forecasters are already significantly shaving their GDP forecasts and canceled or slowing orders and delayed production at America's largest exporting company, Boeing could ripple across the entire job market, possibly making a bigger impact than January's record-long government shutdown. Boeing's slowdown could affect total GDP output, export numbers, and the Census Bureau's factory goods report on aircraft shipments, orders, and related inventories, according to analysts at JP Morgan. U.S. Federal Reserve Chairman Jay Powell said the cross-currents dragging on the U.S. economy include trade and weak foreign demand. But there's a less obvious item he might add to the list: Boeing. The woes of the aircraft manufacturer do not just drive news headlines, and they drive American economic data as well, ft.com reported. Private economists put the drag on growth from Boeing at around 0.25 percentage points in the second quarter. According to the White House Council of Economic Advisers, the damage was even greater: Boeing's troubles cut gross domestic product from March through June by 0.4 percentage points. More importantly, Boeing has hit the parts of the economy economists were already worried about: Investment, exports, and inventories. Unable to deliver the planes it is building, the company has been forced to cut production of 737s from 52 per month to 42. When an airline or leasing company buys an aircraft, it counts as a business investment and boosts GDP growth. But the transaction is not booked until the plane is delivered. That is a problem when deliveries of the most popular Boeing model are halted. Shipments of non-defense durable capital goods are considered a proxy for investment. Since March, those have fallen by an average of one percent compared with a year earlier. But strip out aircraft, and they have grown by 2.5 percent. The Max problems undoubtedly contributed to the contraction in U.S. investment in the second quarter. Of course, not all aircraft are sold domestically. U.S. exports of planes (and their parts and engines) were a staggering $130 billion in 2018, about the same size as all U.S. exports to China that year. Grounding the Max contributed to the 7.5 percent drop in exports in the second quarter. The Boeing effect matters because, in economics, narratives can be just as important as statistics — and Boeing has largely been left out of the story. Most investors agree with Powell that uncertainty around trade and tepid overseas demand are to blame for weak investment and exports and buoyant inventories. This narrative is no doubt true but also incomplete. The company said last week it is "working towards" regulatory approval to return the 737 Max to service in the fourth quarter. If that happens, it aims to ramp up production next year. U.S. investment and exports would get a boost as planes were finally delivered, and inventories would dwindle. This might improve the economic narrative. But there are signs the Federal Aviation Administration could delay giving the 737 Max the all-clear. Southwest Airlines, American Airlines, United Airlines, and Air Canada have all canceled Max flights until January. Boeing has indicated a further delay may force it to cut production of the Max again or halt it altogether. In that case, U.S. investment and exports would be hit even harder without any offsetting boost from inventories. Concerns about a manufacturing and economic recession would escalate. Boeing is not the only factor weighing on the U.S. economy, but its impact is often underestimated. The decision on whether to let the 737 Max fly may prove to be an economic inflection point. Trade and foreign demand remain key to U.S. growth, but keep an eye on Boeing as well.









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