Boeing's 737 Max crisis could have a bigger effect on the US economy than the government shutdown

  • Boeing is facing its worst crisis in years after two of its 737 Max planes crashed in five months.
  • As the 737 Max remains grounded in most of the world, some airlines are rethinking orders they have on the books.
  • JPMorgan’s top US economist said on Friday that any slowdown in the plane maker’s business could have repercussions for the entire US economy.
  • The total effect could be greater than that of the 35-day government shutdown that ended in January.

If more airlines pull their orders of Boeing 737 Max planes, the effect on the US economy could be greater than that of the recent 35-day government shutdown, JPMorgan says.

In a note to clients on Friday, the bank’s chief US economist said that if Boeing were forced to halt production of the 737 Max, the plane that has crashed twice in five months and triggered a global grounding, quarterly gross-domestic-product readings could take a hit.

“If the issues are not resolved in a timely manner and production of the 737 Max needs to be halted for a spell,” Michael Feroli said, “it would take about 0.15% off the level of GDP, or about 0.6%-point off the quarterly annualized growth rate of GDP in the quarter in which production is stopped.”

For comparison, the Congressional Budget Office estimated that the government shutdown that ended on January 25, the longest in US history, shaved about 0.4 percentage points off the first-quarter GDP reading. That’s in addition to the slower spending as thousands of government workers went without paychecks.

“For now, we believe it should have no short-run impact on GDP, as production of this aeroplane is continuing,” Feroli said, adding that he instead expected it to “affect the composition of GDP, implying more growth in inventories and less growth of business investment and gross exports.”

The 737 Max was set to become one of the best-selling planes of all time. But the nearly 400 planes in service around the world have been grounded, and Indonesia’s flagship airline is moving to cancel a $US5 billion order for 49 jets. New purchases of Max jets make up 80% of Boeing’s order book.

“This year sales of the 737 were projected to total about $US35 billion, with about 90% accounted for by the Max model, or about one-quarter of total domestic aircraft production, according to our equity analysts,” Feroli said.

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