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

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

If more airlines pull their pending orders for Boeing 737 Max planes, the impact on the US economy could be greater than that from the 35-day government shutdown, JPMorgan is warning.

In a note to clients on Friday, the bank’s chief economist warned that if Boeing is forced to halt production of the 737 max — the plane that’s crashed twice in five months, and triggered a global grounding — quarterly GDP 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 estimates that the longest government shutdown in US history, which ended on January 25, shaved about 0.4 percentage points from 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 airplane is continuing,” JPMorgan said. Feroli said 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 now the nearly 400 planes already in service around the world have been grounded, and Indonesia’s flagship airline is moving to cancel an $5 billion order for 49 jets. For reference, new purchases of Max jets make up 80% of Boeing’s order book.

“This year sales of the 737 were projected to total about $35 billion, with about 90% accounted for by the MAX model, or about one-quarter of total domestic aircraft production according to our equity analysts,” JPMorgan said.

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