By Josh Mitchell and Doug Cameron
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 3, 2020).
The U.S. economy just hit an air pocket. Blame Boeing Co.
Every now and then a single company can have a measurable impact
on growth. This time it's Boeing, the nation's top exporter.
In January, Boeing halted production of the troubled 737 MAX,
its best-selling jet. The shutdown is likely to reduce U.S. gross
domestic product in the first half of the year, economists say.
The Chicago-based aerospace giant has been in a crisis since
last March, when regulators ordered airlines to stop flying the 737
MAX after faulty software was implicated in two fatal crashes.
Until last month the economic fallout was minimal. While Boeing's
sales tumbled, it continued to produce the jet at a reduced rate at
its factory near Seattle, working through a backlog of 4,500
orders.
Boeing said last week it doesn't expect to restart production
until it gets regulatory approval to resume flying, which it hopes
to secure by midyear and then slowly ramp up production over the
next two years.
Boeing had been building about 42 jets a month since April, and
about 52 a month before that. That might not sound like a lot. But
the 737 MAX sells for about $55 million apiece, analysts say, and
Boeing had planned to sell more than 600 this year, totaling more
than $30 billion. It uses a network of 600 major suppliers
providing everything from engines to seats to bathrooms. Boeing's
Seattle-area factories alone employ 12,000 workers on the MAX.
At least three leading economists say the shutdown will reduce
first-quarter GDP by half a percentage point. Second-quarter output
could also take a hit, since Boeing said it would need two months
or more to ramp up production once it decides to resume building
the MAX.
IHS Markit economist Joel Prakken, who predicts U.S. output will
grow at a 2.0% annual rate in the first quarter, says the impact of
the Boeing crisis "is bigger than what you would see in a
hurricane." He said the production halt could reduce output by $9
billion in the first quarter and $13 billion in the second. The
latter figure is roughly equivalent to more than two billion
McDonald's Big Macs.
The economy grew at a 2.1% rate in the fourth quarter, the
Commerce Department said last week, and 2.3% in all of 2019, when
output totaled $21.4 trillion. Economists say Boeing's troubles
weighed modestly on output last year, when the company and its
suppliers cut production and some flights were canceled.
Growth is likely to bounce back when Boeing resumes production
and sells planes that have been stored around the country, lifting
economic output and exports in the second half of 2020 and early
next year. The extent of the damage hinges on the shutdown's
duration and how Boeing's suppliers react.
General Electric Co., which makes engines for the MAX in a joint
venture with France's Safran SA, said it plans to produce at half
the rate of last year. Spirit AeroSystems Holdings Inc., which
makes the jet's fuselage and is the largest MAX supplier, plans to
lay off 2,800 staff. It aims to make around 200 this year, a third
of output in 2019.
But Boeing itself and most parts suppliers have redeployed
workers rather than laying them off. With unemployment at a
half-century low of 3.5%, skilled workers would quickly find new
jobs, according to Mr. Prakken.
"Companies are a little reluctant to start laying off people who
have specialized knowledge on these assembly lines," he says.
Joe Brusuelas, chief economist at RSM, says economists and
investors may be underestimating the potential of a bigger hit as
U.S. aerospace supply chains are disrupted.
"Once those supply chains are shut down and labor begins to
disperse into other jobs and other areas of the country, restarting
those supply chains is much more difficult than commonly
acknowledged," he said.
It isn't the first time that U.S. growth has been affected by
the travails of a single company.
Last year, more than 46,000 General Motors Co. workers went on
strike for 40 days, stopping production at more than 30 U.S.
factories. Treasury Secretary Steven Mnuchin last month said the
job action, among other factors, may have reduced U.S. output in
2019.
Boeing poses broader risks. One is that regulatory approval for
the MAX is delayed again, forcing the company to push production
back further. Another is that passengers refuse to fly on them,
hurting airline profits and potentially exposing Boeing to higher
compensation claims. And there is the danger that Boeing's
customers turn to European rival Airbus SE -- or China, which has
sought to break up the duopoly through its jet maker Comac, which
will start delivering planes early next decade.
Write to Josh Mitchell at joshua.mitchell@wsj.com and Doug
Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
February 03, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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