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Macroeconomic & Geopolitical

Government Shutdown Bites the Dust

20 December 2019 - 3 min read

Boeing may have an impact on U.S. economic data, the U.K. Tories are back and stronger than ever, and the government shutdown is averted, for now.

Overview

The Boeing Effect: Boeing announced that it is suspending production of its 737 MAX starting in January. This will have a measurable impact on a number of economic data points, but the magnitude will depend on how long the suspension lasts. The impact will be seen in lower ISM, durable goods, industrial production, and 1Q20 GDP data. While these data points will be negatively impacted during the suspension, there will likely be payback in future months once the 737 MAX comes back on line. Boeing has announced it will not furlough or lay off employees, which will limit the direct impacts on the labor market; however, if the suspension lasts a long time, it could affect employment throughout Boeing’s supply chain. For reference, if an employee is furloughed, they will not affect the headline employment number, as the employees will be counted as employed in the Establishment Survey, but would affect the unemployment rate as they would be counted as unemployed in the Household Survey.

Brexit Turbulence: Boris Johnson and his conservative party won in a landslide election last Friday. This paves the way for a vote in favor of the Brexit deal in January. However, Johnson has set himself a hard deadline for the transition period for the end of 2020. Many believe ironing out all of the trade negotiations in this time frame is a massive, if not nearly impossible, undertaking. This has reinvigorated fears of a no-deal Brexit, which has led to a slide in sterling—surrendering all of the gain following Johnson’s victory. While Johnson’s victory aided uncertainty around the U.K.’s path forward, uncertainty surrounding the future trade relationship with the European Union poses a downside risk, as 45% of all U.K. exports went to the EU and 53% of imports were from the EU in 2018.

Avoiding Another Government Shutdown: The House overwhelmingly approved two spending bills this week ahead of the December 20 deadline, to avert another government shutdown. The $1.4 trillion bills, which will fund the federal government through fall of 2020, is expected to pass in the Senate this week. The bills can be seen as a win for both Democrats and Republicans, with each side giving concessions.

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