No, Boeing Isn’t Ruining Trump's 3% Growth Target

(Bloomberg Opinion) -- Boeing deserves blame for many things, but dragging U.S. economic growth below 3% isn’t one of them.

U.S. Treasury Secretary Steven Mnuchin told Fox Business on Thursday that Boeing Co. is a big reason the U.S. won’t see the 3% expansion in gross domestic product that the Trump administration had been predicting for 2020. The Max crisis will shave 50 basis points or more off of GDP this year, Mnuchin said.

Boeing is the largest U.S. exporter, and a production halt for its grounded 737 Max that took effect in January will undoubtedly be a drag on growth, particularly in the first quarter, and economists have said as much. Federal Aviation Administration chief Steve Dickson said Thursday that Boeing had discovered yet another new software issue on the Max in the latest reminder that the jet’s return remains highly fluid and that the current best estimate for a mid-2020 reintroduction may be realistic rather than conservative.(1) But to believe Mnuchin’s statement, you have to also believe that there was ever a real shot of 3% growth this year. Most economists would disagree.

The median forecast of economists surveyed by Bloomberg is for 1.8% U.S. GDP growth this year. That number hasn’t been above 2% since May 2018, almost six month before the first Boeing Max jet crashed off the coast of Indonesia. The Max wasn’t grounded globally until five months after that. Even the most optimistic of the economists surveyed by Bloomberg haven’t called for 2020 GDP growth of 3%-plus since around last March, and there was little indication then that the Max crisis would drag out as long as it did or be as painful for the economy as it will end up being. Boeing initially said it would have all necessary paperwork in to the FAA by late March and didn’t signal it was even thinking about taking the drastic step of shutting down production until July. For the record, the median forecast for 2021 GDP, when Boeing Max production should be ramping back up, is 1.9%.

It feels like Boeing is a convenient scapegoat for an administration that doesn’t care to admit its trade war with China dragged the manufacturing sector into a mild recession last year and that expectations for a swift recovery off of the eventual ceasefire signed in January were overblown. Even after the Max production halt was announced, White House economic adviser Larry Kudlow told CNBC Jan. 21 that U.S. GDP growth would get to 3% this year. In reality, plenty of industrial companies that have almost nothing to do with Boeing have been downbeat about their growth prospects in the coming year, calling for a still sluggish first half and a second-half recovery that many analysts expect to be relatively muted.

“It took industrial activity a while to cool off and it will take a while to heat back up,” Jim Foote, CEO of railroad CSX Corp., said on the company’s earnings call last month. He didn’t mention the Max as a factor. Emerson Electric Co. and 3M Co. both announced fresh restructuring pushes to counter what remains a lackluster economic environment; neither of those companies are major suppliers to Boeing.

The trade ceasefire agreed to in January will result in some rollback of tariffs: China said Thursday it will cut levies on some $75 billion of American imports later this month, while the U.S. will cut tariffs on about $120 billion of more consumer-facing goods. But the initial tariffs placed by the U.S. on some $250 billion of mostly manufacturing-related products from China remain in place. Meanwhile, China has been wishy-washy about how firm the purchasing commitments agreed to in the trade deal actually are, with caveats including market demand, quality and safety standards and, reportedly, the impact of the burgeoning coronavirus crisis.

The U.S. economy likely isn’t going to grow at a 3% rate in 2020. But you can’t lose something you never had.

(1) This particular problem has to do with an alert for the so-called trim system that moves the plane's nose up and down. It's not clear how much of a delay, if any, will result from this issue and Dickson also indicated a certification flight could occur within weeks.

To contact the author of this story: Brooke Sutherland at bsutherland7@bloomberg.net

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

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