Boeing’s 737 Max crisis has wreaked havoc on the airline industry. It may have made a dent in the US economy, too.
The Commerce Department will release its US GDP report for the second quarter Friday. Sluggish activity in the manufacturing sector, including Boeing’s 737 Max production slowdown, is expected to be part of the reason the US economy grew less in the second quarter, compared with the first three months of the year.
Boeing slowed production of its bestselling 737 Max jet last quarter as it works on a software fix to get the planes flying again. Boeing said this week it might temporarily shut down production if its flight certification is delayed any further.
The 737 Max grounding has rippled throughout the airline industry: Airlines have canceled flights, dropped routes, left airports and suspended plane purchases. That has hurt airline profits and aircraft supplier companies.
Boeing is a crucial supplier of durable goods and a large contributor to America’s GDP, the broadest measure of the US economy. The timing of the 737 Max crisis couldn’t be worse: American manufacturing has gone limp in the past months.
Consensus expectations for Friday’s GDP growth are 1.8%, according to economists surveyed by Refinitiv. The Atlanta Fed’s GDPNow tracker stands at a more conservative 1.3%.
Either way, growth in the second quarter will probably represent a steep step down from the 3.1% growth rate in the first quarter.
Tariffs and the ongoing trade war are also dragging on the economy.
“Those on-off US-China trade concerns have contributed to significant swings in GDP growth rates over recent quarters and look set to be a major story again in this Friday’s report,” wrote ING chief international economist James Knightley in a recent report.
The Atlanta Fed said lower inventory investments and net exports dragged growth between April and June.
Despite the second-quarter hiccup in manufacturing, American consumer sentiment remains strong. That’s crucial for America’s economic strength: Consumer spending accounts for more than two-thirds of the US economy. Paychecks got fatter in the second quarter, while gasoline prices have been falling.
It’s important to strip out the noise in an inherently backward-looking report like GDP growth, said Aaron Anderson, SVP of research at Fisher Investments. Instead, staying focused on core components is key.
“Personal consumption and business spending have been growing at a decent clip, and more up-to-date figures like retail sales suggests that’s continuing this quarter,” Anderson said.
In the second half of the year, overall growth could rebound thanks to looser monetary policy from the Federal Reserve. A rate cut at next week’s Fed meeting, designed to give the economy a boost, is expected with 100% certainty, according to the CME FedWatch tool.
And both the Empire State Manufacturing Survey and Philadelphia Fed Index already rebounded in July, as the manufacturing sector is showing first signs of improvement. Along with the Fed, other major central banks, most notably the European Central Bank, are also back on the monetary easing train, which should be a supportive backdrop for the global economy.
But Boeing could remain a drag for the US economy. The airline has no firm timetable for the 737 Max’s return to flight, and if it stops production altogether, that could show up in future GDP growth.