Can any other product rival the impact of Boeing’s 737 Max on the economy?
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Last week, Boeing officially shut down the 737 Max production line. What had been the company’s best selling plane has been grounded, worldwide, since March 2019, after two fatal crashes.
The crisis at Boeing is showing up in key economic indicators that affect us all. In particular, economists say it means that GDP won’t grow as fast as expected at the start of this year.
Which got us to thinking: What else is similarly crucial to the economy? Are there any other single products which, if they went away, would have such a noticeable impact?
Economists have sophisticated computer models which can calculate not only the dollar value of not selling a product, but also the repercussions on suppliers and even on local businesses if workers are laid off. For Boeing’s 737 Max, those downstream repercussions are large.
“It was bigger than I expected before I did the calculation,” said Mark Zandi, chief economist at Moody’s Analytics. His work shows that Boeing ceasing production of the 737 Max will reduce first quarter GDP growth by between three and four tenths of a percent, “which is consequential,” he said.
To put that another way, if the economy was set to grow by 2%, it’ll now grow at just 1.6% or 1.7%, because of that one airplane model.
There aren’t many other products with a list price of $100 million, so let’s consider one with a starting price of about $30,000, but sells in much higher volumes. “Marketplace” asked Mark Zandi to consider what would happen to the U.S. economy if the Ford F-150 pickup truck went away.
“That would probably be half the impact of the 737 Max,” he said. “Something like one to two tenths of a percent, so also consequential.”
Zandi says if you want to see what else can shrink the economy, you have to look at services, not just goods. Shutting down all child daycare centers would have a similar impact to halting the Max production line; it would mean a lot of people can’t get to work. Then, there’s a slice of American Agriculture that the USDA says is worth about $50 billion a year: the poultry industry. If production of all chickens, turkeys and eggs in the U.S. stopped, that would have an impact on the economy similar to that of the Max.
There are examples from the past, too. Economic historian Claudia Goldin at Harvard University, said that the Nobel-winning historian Robert Fogel performed a thought experiment in the 1960s, analyzing the importance of the railways to U.S. economic expansion. He found that “if we ripped up all the railways in 1890, gross national product [similar to GDP] would have been reduced by around 6%,” said Goldin.
That sounds high, but it probably wouldn’t have been catastrophic.
Fogel’s work showed people would have turned to alternatives. Just like if Ford stopped making trucks, customers could walk into the Chevy dealer. There are fewer alternatives for airplane buyers — Airbus already has a backlog. Bu the broader economic lesson seems to hold today.
“The fact you can completely take off line one of the largest products in it, and the economy still rolls on, is still creating plenty of jobs, is still growing at a healthy pace, suggests the U.S. economy is just a much larger, more more diverse economy than any one product,” said Michael Pearce, senior economist with Capital Economics.
Boeing’s latest estimate is that the 737 Max will be back in service in mid-2020, and the company wants to restart production even before that. When deliveries and payments resume, the hit to the economy will diminish.
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