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Grounded
Pittsburgh-based Arconic said it expected to lose $400 million in sales and could cut jobs this year as a result of Boeing’s halted production of the 737 MAX. Six hundred major MAX suppliers and hundreds of smaller companies are weighing their ability to bear higher costs during the suspension and whether to cut expenses by laying off staff. Boeing is expected to provide an update on its production plans when it reports earnings Wednesday. The MAX has been grounded since March after two fatal crashes, and the aerospace company halted its production this month, Bob Tita and Doug Cameron report.
Boeing’s troubles are going to ding the U.S. economy. Already, forecasters had estimated a three-month production pause would lower first-quarter gross domestic product by about half a percentage point—but then expected the economy to make up losses later in the year, leaving full-year GDP untouched. Now? “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…do not account for feedback effects of reduced employment, income, and spending,” economists at IHS Markit write.
Boeing aircraft orders will likely weigh on headline durable goods figures out today.
WHAT TO WATCH TODAY
U.S. durable goods orders for December are expected to fall 0.3% from the prior month. (8:30 a.m. ET)
The S&P/Case-Shiller home-price index is out at 9 a.m. ET.
The Conference Board’s consumer confidence index for January is expected to rise to 128 from 126.5 a month earlier. (10 a.m. ET)
The Richmond Fed’s January survey is out at 10 a.m. ET.
The Federal Reserve begins its two-day policy meeting.
TOP STORIES
Spin Cycle
Whirlpool said profit increased in the latest quarter after it raised prices on some appliances, and raw-material cost increases cooled. The company illustrates the varied effects tariffs can have on U.S. manufacturers. The Trump administration put tariffs on imported washing machines in 2018 after Whirlpool requested protection, allowing the company to charge consumers more. But separate tariffs on imported steel and aluminum pushed up Whirlpool’s costs by about $12 million a month, Austen Hufford reports.
Underscoring the mixed results from tariffs, the White House said it plans to expand steel and aluminum levies. The Trump administration first imposed such tariffs in March 2018. The result: Prices climbed, helping producers but making it more expensive to manufacture some finished products in the U.S. Foreign suppliers stepped in. The White House cites a big rise in imports of steel nails, staples, aluminum wire, car bumpers and other goods in its latest proclamation: “The net effect of the increase of imports of these derivatives has been to erode the customer base for U.S. producers of aluminum and steel.”
Who could have seen that coming? “This is referred to as ‘cascading protectionism’ to economists. First put a tariff on an input, and then additional protection spreads as the downstream using firms need protection,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics.
Fine Tuning
With Federal Reserve officials likely to hold interest rates steady in coming months, the focus of their meeting this week shifts to fine-tuning their control of short-term rates. The Fed flooded markets with cash late last year to avoid a spike in overnight lending rates. Now, officials have to decide when and how to wind down the program. The task could be more complicated if some market commentators are right that the moves have fueled a stock market rally. At issue is an obscure but important corner of finance—the market for repurchase agreements, or repos, in which banks and other firms borrow cash for short periods, pledging government securities as collateral. Officials want to prevent volatility in the repo market from interfering with its control of the federal-funds rate, a benchmark that influences borrowing costs throughout the economy, Nick Timiraos reports.
Take Me Home Tonight
U.S. new-home sales ended a rocky decade with a damp squib. New single-family home sales fell to an annual pace of 694,000, down 0.4% from November and below expectations. The mildly disappointing finish to the year is a marked contrast to other data showing a resurgent housing market and a pickup in construction activity driven by low mortgage rates and a solid jobs market. The report rounds out the weakest decade on record for new-home sales.
Investors Worried, Economists Calm
Investors who began the year feeling largely sanguine about the stock market are struggling to make sense of whether a growing coronavirus outbreak could upend their bets on a global economic recovery. The viral outbreak that originated in Wuhan, China, has infected thousands and spread to the U.S., Japan, South Korea and other countries. The disease threatens to hamper an already-slowing Chinese economy, in turn potentially jeopardizing the global recovery that many investors had counted on to materialize this year, Akane Otani reports. Even so, economists have been reluctant to alter their long-term views:
“The coronavirus outbreak poses an enormous risk for global public health, but for the U.S. economy, fear of the disease is currently a bigger worry than the disease itself. … We don’t anticipate making an adjustment to our baseline forecast for the U.S. economy.” —Ryan Sweet, Moody’s Analytics
“At this time, we have not revised our baseline macro forecasts for China’s growth or the [yuan’s] trajectory. … While it is still early to assess the potential economic impact, the 2003 SARS episode suggests the economic impact on quarterly growth trajectory could be significant, while the impact on full-year growth might be limited, as such episodes are typically followed by strong quarterly revival.” —Joyce Chang and Haibin Zhu, J.P. Morgan
“The continued spread of the virus is concerning, and the outbreak could worsen before being brought under control. However, while we remain alert for a further increase in its severity, we expect the outbreak’s impact on the region’s economy and risk assets to be short-lived.” —Mark Haefele, UBS Global Wealth Management
WHAT ELSE WE’RE READING
Ask and he shall receive. “Male students are 18.6% more likely than female students to receive favorable grade changes initiated by instructors. These gender differences cannot be explained by observable characteristics of the students, instructors and the classes. To understand the mechanisms underlying these gendered outcomes, we conduct surveys of students and instructors, which reveal that regrade requests are prevalent, and that male students are more likely than female students to ask for regrades on the intensive margin,” Cher Hsuehhsiang Li and Basit Zafar write in a National Bureau of Economic Research working paper.
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