Gross domestic product increased at an annualized rate of 3.4% in 2023’s fourth quarter, according to the third estimate released by the Commerce Department’s Bureau of Economic Analysis. The upward revision from earlier readings reflected a more accurate view of consumer spending and nonresidential fixed investment.

Total nonfarm payroll employment in the U.S. grew by 303,000 jobs in March, much more than consensus expectations(?). The unemployment rate dipped slightly to 3.8%, and the labor participation rate was little changed at 62.7%.

Initial jobless claims increased by 9,000 to 221,000, seasonally adjusted, in the week ending March 30. The four-week moving average, which removes volatility, increased by 2,750 to 211,500.

The Consumer Price Index for All Urban Consumers rose 0.4% in March on a seasonally adjusted basis, matching February’s increase, according to the Labor Department, for both headline and core inflation metrics. Over the last 12 months, the all-items index increased 3.5% before seasonal adjustment, compared to 3.2% in the preceding month. Core inflation – stripping out food and energy – was up 3.8% year-over-year. Medical care and dining out both got much more expensive in March, even as fuel price hikes slowed.

The Commerce Department’s latest reading of the Personal Consumption Expenditures (PCE) index – the Federal Reserve’s preferred inflation metric – showed a continued 0.3% monthly price increase in March, and a 2.5% year-over-year price increase. The cost of services keeps driving the PCE upward.

The Conference Board’s Consumer Confidence Index  stood at 104.7 in March, virtually unchanged from the previous month. While consumers appear content with current conditions, the data suggest they’re cautious in their short-term expectations.

The S&P 500 gained a prodigious +3.2% on a total-return basis in March. The CBOE VIX “fear gauge” ended the month at 13.01, down proportionally, as confidence among investors improved.

The 10-year Treasury note ended January with a 4.206% yield, having started the month at 4.252%.

For March, Frankfurt’s DAX and London’s FTSE 100 were both up around +4.5%. Meantime, Amsterdam’s Euronext 100 stayed flat.

Asian markets were all higher. Tokyo’s burgeoning Nikkei 225 continued to outperform the region by rising +3.1%, while Shanghai’s SSE Composite and Hong Kong’s Hang Seng improved +0.9% and +0.2%, respectively.

The good news is, the cycle of central bank rate cutting has begun. The bad news is, it didn’t start here.

Switzerland loosened its monetary policy April 3, making the Swiss National Bank the first central bank issuing a widely held reserve currency to lower its target interest rate. The Swiss franc follows the lead of five developing nations’ central banks which shifted gears in March, Reuters reports.

In unrelated developments, Japan’s monetary authority raised interest rates for the first time in 17 years, while Turkey’s stunned markets with its own half-percent increase.

The Federal Reserve, meantime, kept target rates constant at its March 21 meeting – as it has done consistently since July 2023. According to the CME FedWatch Tool, Wall Street traders surveyed don’t expect action at the upcoming May 1 meeting either. The general consensus at the moment is that a cut will be announced no sooner than July, and that will be the first of either two or three interest rate cuts between now and the end of the year.

West Texas Intermediate crude prices gained a seasonal +6.3% increase to end March at $83.17 per barrel.

Gold rose +8.9% to end March at $2,238.40 per ounce, resuming its recent surge after February’s pause.

The dollar, while flat in London and Frankfurt, gained +0.9% in Tokyo.

Bellwether cryptocurrency bitcoin gained +14.5% in March, ending at $71,028.

The problem with Boeing, Part 1

Not again. Just as we were finishing up this article, yet another part flew off yet another Boeing jet.

Southwest 3695 bound for Houston had to return to Denver shortly after 8 a.m. local time April 7 after an engine cowling detached from the 737-800 prior to takeoff. To give you some idea how much “Boeing Plane Falls Apart” has become a dog-bites-man story, that Sunday’s Denver Post had more coverage of the housing shortage – see our feature story above – than of the incident on the DIA tarmac.

This is the 29th – 29th! – such incident … in 2024! Newsweek, among others, is keeping a running list. We’re all familiar with the first one – January 5, when an Alaska Air 737 Max 9 separated from one of its door plugs. But there were 27 others, and we’re not even counting all the Alaska Air and United Max 9s that were grounded and, upon inspection, were also revealed to have loose bolts. At this rate, Boeing could end up with more losses this year than the Chicago White Sox.

There’s a lot to unpack about the problems involving the airline industry’s biggest vendor, more than space here allows. So, much like a 737, our coverage will come in two parts. Next month, we’ll discuss the path forward – if any – for Boeing as a component of a long-term investment portfolio. Today, though, let’s talk about how Boeing – America’s only long-haul passenger jet manufacturer – got to the point where its future is in doubt.

Once upon a time

Was that overly flippant? Sorry. The jokes write themselves, and maybe we’d be in a mood to tell more of them if this were a story of near-disasters. But when we consider that 346 lives were lost in two separate Max crashes almost immediately after the model’s commercial debut, we suddenly feel more somber. What makes it worse is that those fatalities had nothing to do with the airframe’s integrity – those were control issues. That the Max and its 737 cousins can be faulty in several areas should give us all pause.

It means that there isn’t just a control problem or just a hardware problem. There’s a quality problem that’s bigger than anything that can be fixed with a software patch or a turn of the wrench.

It wasn’t always like this. When William Boeing founded Pacific Aero Products in 1916, it was a fast riser. The entire West Coast tech industry owes a long strand of its DNA to this pioneering company. It moved quickly, pivoted frequently, bought subsidiaries, found synergies and spun off business lines. United Airlines and United Technologies both started life as Boeing divisions.

But no matter how fast things moved at its Seattle headquarters, the shop floor always operated at a safe speed which engendered quality and dependability.

“Boeing was once among the most respected American companies,” James Surowiecki wrote for The Atlantic after the Alaska Air incident. “It helped NASA put a man on the moon. It built the 747, the most famous passenger airplane of all time. The firm’s reputation for safety and excellence was such that people used to say, ‘If it’s not Boeing, I’m not going’ —and actually meant it. So, what went wrong?”

Then came McDonnell Douglas

Answering his own question, Surowiecki concludes, “Boeing’s culture had changed.”

In 1997, Boeing bought rival McDonnell Douglas. Legitimate antitrust issues aside, it looked from the outside like an obvious fit. They both made aircraft and spacecraft for both civilian and military use. As it turned out, though, they had very different ways of doing things. And even though the combined entity’s name was Boeing, McDonnell Douglas management was clearly in the left-hand seat.

“When people say I changed the culture of Boeing, that was the intent, so that it’s run like a business rather than a great engineering firm,” said Harry Stonecipher, the McDonnell Douglas CEO who ran the enlarged company from 2003 to 2005.

Boeing moved its headquarters, first to Chicago, then inside the Washington Beltway. In Surowiecki’s telling, this matched the power shift from the engineers to the accountants. And accountants love to outsource.

If you think flying a jetliner is complicated, try building one. There’s some half a million parts in a 737, and they’re manufactured by more than 600 suppliers. Most of what Boeing does is final assembly. Basically, Boeing has one job: Making sure all the pieces fit together. And that’s exactly what it’s not doing consistently enough.

“Supervising the reliability of the manufacturing and quality-control processes at all of those different suppliers, while ensuring the reliability of Boeing’s own assembly processes, requires a maniacal attention to detail, a willingness to spend freely on reliability and safety, and a culture that tolerates the reporting of mistakes and the investment of serious resources in fixing them,” Surowiecki writes. “That ethos is hard to instill using only financial incentives or the threat of firing. What’s really needed is a culture of perfectionism—and that’s what Boeing seems to have lost over the past 20 or so years.”

Consensus and expert analysis

Surowiecki’s opinion is well-considered, as he is one of America’s premier business journalists. But we shouldn’t take just his word for it. A lot of people blame McDonnell Douglas for Boeing’s decline. As early as 2022, a Netflix documentary, Downfall: The Case Against Boeing, came to the same conclusion.

Of course, “corporate culture” is not a term that works its way into National Transportation Safety Board reports, such as the one on the Alaska Air incident. That report does, however, contain the phrase “human performance”. While the error rate will never go to zero, it can be a lot lower than it is now. Human performance, though, can only be regulated via human accountability. That’s where corporate culture can be a help or a hindrance.

Somewhere between the mid exit door plug’s manufacturing in Indonesia, its acceptance by parts supplier Spirit AeroSystems and its final assembly at Boeing’s Renton, Wash., facility, three bolts came up missing and the NTSB still hasn’t reached a final conclusion of exactly how that happened. One thing we can be certain of is that passengers on that Alaska Air flight were terrified as their cabin depressurized.

We can also be certain that Boeing CEO David Calhoun is stepping down at the end of the year and that Boeing’s share price has been tumbling while the broader market has been trending up. We’ll talk more about all that next month but, in the meantime, you might want to talk with your financial advisor about how best to invest in the Transportation sector of the market.

-Chris

Chris Lott, CFP®, CPA

Financial Partner and Wealth Advisor

Chris Lott, CFP®, CPA is a Managing Partner at Smith Anglin Financial, and is a member of the firm’s Investment Committee. He regularly meets with prospective clients, counsels existing clients, leads investment portfolio analysis and develops materials for communicating with the firm’s clientele and target markets.