NY Fed: Boeing production pause could weigh on GDP in 2020

The New York Federal Reserve says that Boeing completely halting production on the 737 Max could have a negative effect on the U.S.’s expected quarterly gross domestic product (GDP) growth in 2020.

The planes have been grounded since last March after a pair of plane crashes within the year killed almost 350 people. Boeing had initially hoped that the 737 Max would be back in the air by January, but roadblock after roadblock including the release of damning information about the plane’s safety regulations have led the manufacturer to completely stop production of the beleaguered aircraft.

Boeing had been producing an average of 52 of the planes a month, but isn’t expected to produce any in the first quarter of 2020. Coupled with the price tag of $130 million per plane, the lack of production would result in a loss of $7 billion per month and $21 billion per quarter. For reference, Boeing averaged $25 billion in quarterly revenue in 2018.

“Treating this sales loss as the firm shock, the lost GDP growth is then Boeing’s Domar weight times this loss (0.0047*–0.84 = –0.004), or a 0.4 percentage point decline in GDP growth,” Julian di Giovanni, an assistant vice president in the New York Fed’s Research and Statistics Group, said in a blog post.

“This is a significant fall given an average quarterly GDP growth of 2 percent,” di Giovanni explained.