GDP effect of a longer pause in 737 MAX production

Our latest forecast assumes the pause in production lasts through March. In terms of year-over-year GDP growth, the effect of this pause is lost in rounding. But this assumption now appears optimistic, based on recent developments. A pause lasting through June would reduce growth this year by 0.1 percentage point, and a pause lasting through December would reduce growth this year by 0.2 percentage point.

These estimated effects, we should note, are static in that they do not account for feedback effects of reduced employment, income, and spending. The longer the pause in production, the less likely it is that any company involved in 737 MAX production (Boeing and its suppliers) can keep its labor force fully employed, and the more likely we would see feedback effects augmenting the static effects shown in the table. On the other hand, a longer pause at Boeing could be partially offset elsewhere in the economy by lower borrowing costs and higher interest-sensitive spending, if financial markets came to expect more accommodative Fed policy. The net result would depend on the magnitudes of these countervailing effects.

Posted 22 January 2020 by Ben Herzon, US Economist, Insights and Analysis, S&P Global Market Intelligence and

Ken Matheny, Executive Director, Research Advisory Specialty Solutions, S&P Global Market Intelligence