Feb 14, 2020 - Economy & Business

New York Fed says Boeing's production freeze could cut U.S. GDP growth by 20% in 2020

Photo: Roslan Rahman /AFP/Getty Images

Analysts at the New York Fed expect the all-out production stoppage on Boeing's 737 MAX will have a sizable negative impact on U.S. growth this year.

State of play: The decline will produce a 0.4% decline in GDP growth, the NY Fed's Julian di Giovanni finds.

Why it matters: "This is a significant fall given an average quarterly GDP growth of 2 percent," di Giovanni writes in a recent Fed blog.

Background: Prior to the slowdown in production that began in 2019 after nearly 350 people died in two plane crashes, Boeing was producing roughly 52 of those models on average per month. It's assumed this number will be zero for the first quarter of 2020.

  • Assuming workers' productive capacity, even if they are laid off, is zero, and suppliers are all domestic, di Giovanni applies Hulten’s theorem to the implied percentage change in sales from the 737 MAX production stoppage to calculate the total loss.

By the numbers: "Boeing averaged about $25 billion in quarterly revenue in 2018. Assuming that the average price of a Boeing 737 MAX is roughly $130 million, a pause in all production and sales implies lost revenue of $7 billion per month, or $21 billion for the first quarter of 2020."

  • "This then implies a sales loss of roughly 84 percentage points relative to an average quarter in 2018."
  • "Treating this sales loss as the firm shock, the lost GDP growth is then Boeing’s Domar weight times this loss (0.0047*–0.84 = –0.004), or a 0.4 percentage point decline in GDP growth."

Go deeper: The fallout from Boeing's 737 MAX suspension could have a big impact

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Boeing's continued woes will add to coronavirus damage

Illustration: Aïda Amer/Axios

Somewhat forgotten in the evaluation of the current state of the U.S. economy is the ongoing debacle at Boeing, a flagship American company whose production shutdown led to the New York Fed estimating it would shave 20% off of 2020's GDP growth — and this was before the coronavirus outbreak. Things could be getting worse for Boeing.

Driving the news: A report is due this week from airline safety investigators to coincide with the one-year anniversary of the Ethiopian Airlines crash that was the second in six months for Boeing's 737 MAX jets.

New Boeing CEO criticizes predecessor, looks to future

David Calhoun. Photo: Mark Wilson/Getty Images

Boeing's new CEO David Calhoun criticized his predecessor Dennis Muilenburg for failing to get the company back on track following two deadly 737 Max crashes, during an interview with The New York Times.

"I'll never be able to judge what motivated Dennis, whether it was a stock price that was going to continue to go up and up, or whether it was just beating the other guy to the next rate increase. If anybody ran over the rainbow for the pot of gold on stock, it would have been him."
— Boeing CEO David Calhoun

Ethiopian investigators find design flaws contributed to Boeing crash

Debris at the crash site of the Nairobi-bound Ethiopian Airlines flight near Bishoftu, southeast of Addis Ababa, Ethiopia, in March 2019. Photo: Michael Tewelde/AFP via Getty Images

Investigators in Ethiopia have found that Boeing 737 Max jet design flaws contributed to the Ethiopian Airlines crash in the country last year, according to an interim report released Monday.

Why it matters: The report was released as families prepared to mark the first anniversary of the crash, which killed all 157 people on board. This second fatal crash involving a Boeing 737 Max jet within six months prompted scores of countries, including the U.S., to ground the planes.

Go deeperArrowMar 10, 2020 - World