(Bloomberg): Boeing deserves blame for many things, but dragging US economic growth below 3 per cent isn’t one of them.
US Treasury Secretary Steven Mnuchin said that Boeing Co. is a big reason the US won’t see the 3 per cent expansion in gross domestic product that the Trump administration had been predicting for 2020. The Max crisis will shave 50 basis points or more off of GDP this year, Mnuchin said.
Boeing is the largest US exporter, and a production halt for its grounded 737 Max that took effect in January will undoubtedly be a drag on growth, particularly in the first quarter - and economists have said as much. Federal Aviation Administration chief Steve Dickson said Thursday that Boeing had discovered yet another new software issue on the Max in the latest reminder that the jet’s return remains highly fluid and that the current best estimate for a mid-2020 reintroduction may be realistic rather than conservative.
But to believe Mnuchin’s statement, you have to also believe that there was ever a real shot of 3 per cent growth this year. Most economists would disagree.
Well under 3%
The median forecast of economists surveyed by Bloomberg is for 1.8 per cent US GDP growth this year. That number hasn’t been above 2 per cent since May 2018, almost six months before the first Boeing Max jet crashed off the coast of Indonesia.
The Max wasn’t grounded globally until five months after that.
Even the most optimistic of the economists surveyed by Bloomberg haven’t called for 2020 GDP growth of 3 per cent plus since around last March, and there was little indication then that the Max crisis would drag out as long as it did or be as painful for the economy as it will end up being.
Boeing initially said it would have all necessary paperwork in to the FAA by late March and didn’t signal it was even thinking about taking the drastic step of shutting down production until July. For the record, the median forecast for 2021 GDP, when Boeing Max production should be ramping back up, is 1.9 per cent.
In the firing line
It feels like Boeing is a convenient scapegoat for an administration that doesn’t care to admit its trade war with China dragged the manufacturing sector into a mild recession last year and that expectations for a swift recovery off of the eventual ceasefire signed in January were overblown.
Even after the Max production halt was announced, White House economic adviser Larry Kudlow said that US GDP growth would get to 3 per cent this year. In reality, plenty of industrial companies that have almost nothing to do with Boeing have been downbeat about their growth prospects in the coming year, calling for a still sluggish first half and a second-half recovery that many analysts expect to be relatively muted.
“It took industrial activity a while to cool off and it will take a while to heat back up,” Jim Foote, CEO of railroad CSX Corp., said on the company’s earnings call last month. He didn’t mention the Max as a factor.
Emerson Electric Co. and 3M Co. both announced fresh restructuring pushes to counter what remains a lackluster economic environment; neither of those companies are major suppliers to Boeing.
The trade ceasefire agreed to in January will result in some rollback of tariffs: China said it will cut levies on some $75 billion of American imports later this month, while the US will cut tariffs on about $120 billion of more consumer-facing goods. But the initial tariffs placed by the US on some $250 billion of mostly manufacturing-related products from China remain in place.
Meanwhile, China has been wishy-washy about how firm the purchasing commitments agreed to in the trade deal actually are, with caveats including market demand, quality and safety standards and, reportedly, the impact of the burgeoning coronavirus crisis.
The US economy likely isn’t going to grow at a 3 per cent rate in 2020. But you can’t lose something you never had.