Getty Images The decision by Boeing Co. to temporarily halt 737 Max production in January will hit the economy hard in the first quarter, according to an analysis by Ellen Zentner, chief U.S. economist at Morgan Stanley, released Tuesday.
According to the report, Boeing’s BA, +0.00% decision will cut the annual rate of GDP growth by 80 basis points in the first quarter, assuming the production halt lasts through first three months of the year, as now anticipated.
Read: Grounding of 737 Max has created backlog of jetliners
By itself, this negative impact would push the economy uncomfortably close to negative territory. Economists surveyed by MarketWatch were penciling in a 1.3% annual growth rate for the first quarter before Boeing’s production plans were updated.
The production shutdown will also weigh on the ISM manufacturing index in coming months. The ISM factory index has already been signaling a contraction in activity for four months. But the ISM services-sector index is still expanding.
Boston Fed President Eric Rosengren said Tuesday that a decline in the ISM factory index by itself is not a reliable signal of a future recession. Both services and manufacturing were contracting before the past two recessions, he noted.
Assuming 737 Max production ramps back up in the second quarter, the negative effects will be more than reversed, Zentner said, though she noted this was uncertain.
Industrial output rebounded in November in the wake of the end of a strike against General Motors GM, +0.55% .
Read: Industrial production up sharp 1.1% in November
Like the GM strike, the impact of the Boeing production suspension should, at some point, net out from government statistics. “We do not expect it will have a material impact on the full-year growth rate,” Zentner said.
Boeing shares were down slightly in Tuesday trading as investors digested news of the decision.
In a separate note, Ian Shepherdson, chief economist at Pantheon Macroeconomics, estimated a smaller hit on Q1 GDP of around 0.16 percentage points.
When you add supply chains, triggering inventory rundowns and deferred capex, the drag could be magnified to 0.3 percentage point, he added.
“That’s not an enormous blow, though note that it comes in the first quarter, when GDP growth usually is depressed by residual seasonality in the data, so it will make weak numbers look a bit worse,” he said.
Add Comment