Boeing Woes to Dent U.S. GDP in Second Quarter, Wells Fargo Says
(Bloomberg) -- The grounding of Boeing Co.’s 737 Max will cause a drag of about 0.2 percentage point on U.S. economic growth in the second quarter, Wells Fargo & Co. forecast on Tuesday.
“The major negatives will be slower equipment spending and export growth during the quarter,” senior economists Tim Quinlan and Sarah House wrote in a note. “Those drags will be almost offset by an inventory boost as the undelivered aircraft test storage capacity at production facilities and unused airfields.”
Production cuts and halted deliveries of Boeing’s best-selling aircraft after two fatal crashes will ripple through components of gross domestic product and other economic indicators for months, according to the analysis, which cited industrial production, durable goods and shipments. The impact on durable goods orders “could be substantial if airlines delay new orders until safety concerns are addressed or book with a competitor,” the economists wrote.
Adjusted for the Boeing issues, Wells Fargo gave a second-quarter growth forecast of 2.5 percent, down from 2.7 percent.
It’s still not clear when global regulators will clear the Max to resume commercial flights. Chicago-based Boeing is still working on a redesign of the anti-stall system implicated in two fatal crashes. The model is the latest version of the 737, the aviation industry’s best-selling jetliner family, racking up more than 10,000 deliveries over a half century.
Halted 737 Max shipments indicate second-quarter equipment spending and exports in the “are likely to take a significant hit,” the economists said, because nearly three-quarters of the aircraft were exported last year. Reversing the stoppage will potentially boost growth in the second half, depending on when the all-clear is given, the analysts wrote.
Boeing this month cut 737 production for the first time since the Sept. 11 attacks, saying it will temporarily move to a rate of 42 per month in mid-April from an earlier pace of 52.
While work slows in Boeing’s main Seattle-area factory, much of the 737 supply chain continues to move full steam ahead at the previous production pace. Running hot allows companies like Spirit AeroSystems Holdings Inc., which builds the jet fuselages, to avoid layoffs that might further disrupt the economy.
Cancellations, not just fewer new orders, would also reduce the total value of U.S. durable goods orders, Wells Fargo said. Garuda Indonesia, flag-carrier for the nation where another airline suffered one of the crashes, threatened to cancel a $4.8 billion deal for 49 Max 8s amid passenger mistrust in the model.
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