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Boeing’s CEO said Wednesday that the company will begin furloughing “a large number” of employees to conserve cash during the strike by union machinists that began last week.
Chief Executive Kelly Ortberg said the people who would be required to take time off without pay starting in the coming days include executives, managers, and other employees based in the U.S.
“While this is a tough decision that impacts everybody, it is to preserve our long-term future and help us navigate this very difficult time,” Ortberg said in a company-wide message to staff.
Boeing didn’t say how many people will face rolling furloughs, but the number is expected to run into the tens of thousands. The aerospace giant had 171,000 employees at the start of the year.
About 33,000 Boeing factory workers in the Pacific Northwest began a strike Friday after rejecting a proposal to raise pay by 25% over four years. They want raises of at least 40%, the return of a traditional pension plan, and other improvements in the contract offer they voted down.
The strike is halting production of several airplane models, including Boeing’s best-selling plane, the 737 Max. The company gets more than half of the purchase price when new planes are delivered to buyers, so the strike will quickly hurt Boeing’s cash flow.
Ortberg said selected employees will be furloughed for one week every four weeks while retaining their benefits. The CEO and other senior executives will take pay cuts during the duration of the strike, he said, without stating how deep the cuts will be.
All work related to safety, quality, customer support, and certification of new planes will continue during the furloughs, he said, including production of 787 Dreamliner jets, which are built by nonunion workers in South Carolina.
Ortberg said in a memo to employees that the company is talking to the International Association of Machinists and Aerospace Workers about a new contract agreement that could be ratified.
“However, with production paused across many key programs in the Pacific Northwest, our business faces substantial challenges and it is important that we take difficult steps to preserve cash and ensure that Boeing can successfully recover,” he said.
Boeing’s chief financial officer warned employees earlier this week that temporary layoffs were possible.
The company, which is based in Arlington, Virginia, but has most of its commercial airplane business located in the Pacific Northwest, is also cutting spending on suppliers, freezing hiring, and eliminating most travel.
Company and union representatives met with federal mediators Tuesday to restart negotiations and were expected to meet again Wednesday. In a website post addressed to members, the union said it was frustrated by the first day of new talks.
“The company was not prepared and was unwilling to address the issues you’ve made clear are essential for ending this strike: Wages and Pension,” the union said. “The company doesn’t seem to be taking mediation seriously.”
Striking workers are picketing at several locations in the Seattle area, Oregon and California. The union, which recommended the offer that members later rejected by a 96% vote, is surveying the workers to learn what they want in a new contract. The union’s last strike at Boeing, in 2008, lasted about two months.
If the walkout does not end soon, Boeing’s credit rating could be downgraded to non-investment or junk status, which would make borrowing more expensive. Shortly after the walkout began Friday, Moody’s put Boeing on review for a possible downgrade, and Fitch said a strike longer than two weeks would make a downgrade more likely.
The US is heading for a soft landing, as the economy expands while inflation drifts back to the Federal Reserve’s 2 per cent target, according to projections from economists polled by the Financial Times. GDP growth will be 2.3 per cent in 2024 and 2 per cent in 2025, according to the median estimates by the economists polled in the FT-Chicago Booth survey. Unemployment will rise to 4.5 percent by the end of this year, slightly above the current rate of 4.2 per cent but still historically low, while the core personal expenditures index — the Fed’s preferred inflation gauge — will fall to 2.2 per cent from 2.6 in July, the economists predicted. The survey findings, which come just days before the Fed is expected to begin cutting interest rates, suggest the US economy is heading towards the central bank’s optimal outcome after a period of high borrowing costs: solid growth, low inflation, and healthy employment. “It’s a shockingly smooth landing,” said Dean Croushore, who served as an economist at the Fed’s Philadelphia Reserve Bank for 14 years and participated in the survey. “Fundamentally, things are still pretty strong across the board.” The more benign outlook in the survey, which polled 37 economists between September 11 and 13, found that a majority of respondents did not expect a contraction in the next several years. The optimistic view aligns closely with the Fed’s, whose officials have steadfastly argued that a recession can be avoided as inflation falls back to target. It also suggests that a closely watched recession indicator may be off target in this cycle. The so-called Sahm Rule marks the start of a recession when the three-month average of the US unemployment rate rises at least half a percentage point above its low over the past 12 months. The economist who penned the rule has even said it being triggered may not mean what it has in the past. “This could be the one occasion that breaks the Sahm Rule,” said Jonathan Wright, a former Fed economist now at Johns Hopkins University, who helped to design the survey. “I don’t see anything like an adverse feedback loop or anything like recessionary dynamics in play yet,” he said. “That is something where you see unemployment rising, and because of that consumption and investment fall, and because of that unemployment rises, and so on.” The Fed has made clear it does not want to see the labor market worsen beyond current levels, with chair Jay Powell saying officials would “do everything we can to support a strong labor market as we make further progress towards price stability”. The Fed next week is widely expected to cut interest rates from the 23-year high of 5.25-5.5 percent it has held since last July, although the decision to cut by half a percentage point or a more traditional quarter-point remains a close call. More than 90 per cent of the economists polled thought the Fed would opt for a quarter-point cut, with 40 per cent expecting its policy rate to fall by three-quarters of a percentage point or more this year. By the end of 2025, more than 80 per cent thought it would be held at 3 per cent or more. Traders in swaps markets are currently pricing in a roughly 50 percent chance that the Fed will go for a bumper, half-point cut next week and lower the rate a full point this year. Croushore said he would not be surprised if the Fed opted for the bigger cut next week, especially if officials thought they had been too slow to loosen monetary policy in the summer. But “the quarter-point difference isn’t going to be that big a deal”, he said. Wright said a half-point cut would not be unreasonable at some point, given the Fed is in “very restrictive territory” now that inflation was under control. But he worried about the signal an initial half-point cut might send. “Previous easing cycles that have started out with 50 [basis points] have been in the context of crises or something very visibly wrong,” he said. “There is a worry that it’s seen as an ominous sign or that it could be seen as something political before the election.” The September meeting comes just seven weeks before Donald Trump and Kamala Harris face off in the polls. Both candidates have distinctly different economic platforms, with former president Trump touting tariffs, tax breaks for corporations, and deregulation and vice-president Harris focusing on tackling price-gouging and raising taxes on the wealthy and big businesses to pay for more generous social safety benefits. Asked whose economic platform would be more inflationary, 70 per cent of the economists picked Trump’s. The same proportion thought his plan would lead to larger deficits. Less than a third thought there would be no material difference in terms of inflation, while roughly a fifth said the same regarding the deficit.
Backward-looking economic data shows America's job market is slowing. Future plans at some of the nation's biggest corporations show the slowdown might continue, according to survey results shared first with Axios.
Once the labor market starts cooling, it typically continues. The central question for the economy is whether this time will be different.
The latest hint comes from a new Business Roundtable survey of 145 top business leaders that points to muted economic confidence.
- The lobbying group's index that tracks CEO confidence fell 5 points in the third quarter to 79, dipping below the historical average for the first time this year.
- Among the factors that pulled the index down: A smaller share of executives are planning to increase headcount.
"This is the second consecutive quarter in which CEOs have reported they are moderating their hiring plans," Joshua Bolten, the CEO of the Business Roundtable, said in a statement.
- Still, fewer than 30% of executives plan to decrease hiring — not too much lower than the historical average.
- The survey's results "seem to be consistent with the Fed's perspective on a softening economy," Bolten said.
The survey also shows that 37% of CEOs anticipate no change to employment in the next six months. Meanwhile, 34% say headcount will increase in that period.
The intrigue: The sentiments reflected in the survey match developments in the labor market.
- Demand for staff has slowed. Workers entering the labor market find it harder to get a job — a factor pushing up the unemployment rate.
- Layoffs, however, remain low. That's a sign that most companies aren't necessarily shedding workers, though they are slowing the hiring of new employees.
More CEOs anticipate sales will slow in the months ahead — a factor that might be influencing their receding hiring plans.
- The sales sub-index dropped 13 points to 110, indicating that executives expect moderating demand for their goods or services as the economy cools.
The index tracking plans for capital investment — spending on new equipment, factories, and more — edged up slightly by 3 points.
- "A majority of CEOs indicated they plan to maintain or increase capex in the near term — investing in equipment, technology, and other tools that drive productivity and growth," Cisco CEO Chuck Robbins, who chairs the Business Roundtable, said in a statement.
CEO expectations don't point to a recession. But they confirm the concerns about the labor market that are pushing the Fed to cut interest rates on Wednesday afternoon.