Month: July 2024

Powell Signals Rate Cut Coming Into View Inflation and economic activity are cooling, in line with the Fed’s expectations.

Federal Reserve Chair Jerome Powell declined to change expectations Monday that the central bank would hold interest rates steady at its meeting in two weeks as officials look ahead toward potential rate cuts after that.

Powell said inflation and economic activity had slowed broadly in line with the central bank’s expectation. Data on price pressures between April and June “do add somewhat to confidence” that inflation will return to the Fed’s target after inflation readings failed to provide such confidence earlier this year, he said during a question-and-answer session in Washington on Monday.

But Powell declined to say whether that would justify lowering interest rates at policymakers’ meeting later this month, on July 30-31. Investors broadly expect the central bank to start reducing rates at its following gathering in September.

“I’m not going to be sending any signals one way or another on any particular meeting,” Powell said. “We’re going to make these decisions meeting by meeting.” (…)

In an interview Friday, Chicago Fed President Austan Goolsbee said he was concerned that holding rates steady would contribute to an unduly tight policy stance because with every new month in which inflation is lower, the inflation-adjusted benchmark rate is rising.

“We set this rate when inflation was over 4%, and inflation is now, let’s call it, 2.5%. That implies we have tightened a lot since we’ve been holding at this rate,” Goolsbee said. (…)

Odds of a July rate cut were low immediately before Powell spoke, at around 13%, according to interest-rate futures prices from CME Group, and they drifted down to around 7% after his remarks Monday afternoon.  (…)

Bloomberg provides other interesting Powell quotes:

• “Now that inflation has come down and the labor market has indeed cooled off, we’re going to be looking at both mandates,” Powell said. “They’re in much better balance.”
• Powell described the labor market as “no longer overheated”.
• “It seems to me that the neutral rate is probably higher than it was during the inter-crisis period, and so rates will be higher,” said Powell, noting that current policy feels “restrictive” but not “severely restrictive.“

Why Wait? asks Goldman Sachs’ Jan Hatzius:

(…) Using the latest unemployment and inflation numbers, we estimate that the median of the Fed staff’s monetary policy rules now implies a funds rate of 4%, well below the actual rate of 5¼-5½%. Based on this observation, the encouraging June CPI, and Chair Powell’s congressional testimony last week, we expect adjustment cuts to start soon.

Markets are almost fully priced for a cut at the September 17-18 FOMC meeting, which remains our baseline forecast. But we see a solid rationale for cutting as early as the July 30-31 meeting.

First, if the case for a cut is clear, why wait another seven weeks before delivering it? Second, monthly inflation is volatile and there is always a risk of a temporary reacceleration, which could make a September cut awkward to explain. Starting in July would sidestep that risk. Third, the FOMC has an undeniable (if never acknowledged) incentive to avoid initiating cuts in the last two months of a presidential election campaign. This doesn’t mean the committee couldn’t cut in September, but it does mean that July would be preferable. (…)

In a Republican sweep, we expect a full extension of the 2017 tax cuts as well as increased tariffs that are recycled into fresh tax cuts. Our analysis presented at the ECB’s Sintra conference earlier this month suggests that a 10pp increase in the effective US tariff rate with full retaliation by US trading partners would subtract 0.5pp from GDP growth and add 1.1pp to core PCE inflation for a year. The combination of a modest growth hit and a significant inflation boost could slow down Fed cuts next year, with the important caveat that policy reactions to tariffs may be muted given that the inflation boost should drop out after a year (much like a VAT or sales tax hike) and that the case for significant cuts remains strong in a baseline without a trade war. (…)

According to ADG, Mr. Powell also said on Monday:

If you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%.

Canadian Firms Plan to Curtail Wage Increases, Hold ‘Glum’ Sales Outlook Downbeat results from Bank of Canada survey lifts likelihood of rate cut next week

Canadian business owners have a dour sales outlook and say they plan to sharply scale back pay increases over the next year, according to a quarterly survey issued Monday by the Bank of Canada.

The results from the business-outlook survey reflect subdued economic activity and a softening of upward price pressures, leading economists to predict a second straight quarter-point rate cut from the Bank of Canada next week—so long as inflation data for June, out on Tuesday, doesn’t surprise on the upside. (…)

The survey released Monday indicated that the share of firms citing labor shortages as a capacity constraint fell to the lowest level since 2009, as soft sales expectations have curtailed hiring and the labor force has expanded at a rapid pace because of immigration.

Close to 60% of firms said they expect growth in labor costs to be weaker over the next 12 months, versus 11% that said they would be higher. Businesses said they expect to deliver wage increases of 3.4% over the next year, down from the previous quarter’s expectation of 4.1% and the outlook in the year-ago quarter of 4.5%. Only 15% of companies reported labor shortages, or the lowest level since mid-2020. (…)

The survey also reported that firms expect slower growth in prices for their inputs, and the price they charge their customers. The survey said businesses attributed the downward pressure to slowing wage growth and weakness in demand.

The central bank’s survey suggested firms would report below-average sales growth over the next 12 months, with 37% of firms indicating that future-sales indicators—like order books and sales inquiries—have deteriorated compared with a year ago. Businesses reported that consumers are trading down to less-expensive products, or looking for discounts. The deterioration in the sales outlook was particularly acute for firms that provide discretionary, or nonessential, goods and services, the central bank said.  (…)

Xi Jinping’s Great Economic Rewiring Is Cushioning China’s Slowdown Advances in electric vehicles, solar and semiconductors are helping the nation navigate its property slump

(…) Xi Jinping’s long quest for technology-driven “high-quality growth” is actually starting to pay off.

While Japan and America both suffered deep economic setbacks when their housing markets hit the skids, China’s tech advances and resulting export boom have helped to keep economic growth within reach of its targeted pace of around 5%. (…)

For Xi, those protectionist salvos only reinforce his resolve to build self sufficiency in strategic areas such as advanced computer chips to ensure China can’t be hobbled by any worsening in trade — or military— tensions.

If Beijing can keep batting away US-led containment efforts, exclusive analysis from Bloomberg Economics forecasts the hi-tech sector will account for 19% of gross domestic product by 2026, up from 11% in 2018. Combining what Beijing has dubbed the “new three” — EVs, batteries and solar panels — the proportion of GDP swells to 23% of GDP by 2026, more than enough to fill the void from the ailing real estate sector, which is set to shrink from 24% to 16%.

“Pessimism on China’s prospects is understandable but also overdone,” say Chang Shu and Eric Zhu, economists with Bloomberg Economics. “The government might just be about to pull off a great rebalancing.” (…)

GDP related to high-tech industries — including medicine, advanced equipment, information technology and communications equipment and services, and research and development — expanded 12% on average between 2018 and 2023, significantly faster than the nominal GDP growth of 7%. Bloomberg Economics’s projections are based on the assumption that the industries can largely keep their current growth pace. (…)

Across China, weakness in the property market has undermined consumer sentiment, youth unemployment is worryingly high and raging price wars in sectors like automobiles are weighing on company revenues. Yet the government and central bank have held back from switching to stimulus mode as the overall growth rate remains underpinned by surging exports.

Economists say there’s room for more stimulus if the 5% growth target appears out of reach. But Chinese leaders remain firmly wedded to supply-side policies rather than demand-side “welfarism” — something Xi has in the past criticized as a trap that leads to “lazy people.” (…)

Chinese leaders have set an ambitious goal of becoming a “medium-developed country” by 2035 — a goal that would require it to lift per-capita GDP from the current $12,600 level to over $20,000 and maintain growth rates of around 5% a year. Policy advisers point to countries like South Korea, which managed to move up the value chain and avoid getting stuck in the middle-income trap.

To repeat Korea’s success, China needs to lift its productivity through innovation, which would lead to an increase in economic output even when the quantity of inputs like labor and capital stays the same or even contracts. That’s important because China’s aging society means the labor force has been decreasing for a decade, while the return of credit-driven investment from things like bridges and roads is in decline.

China’s total factor productivity — a measure of how efficiently resources are used to generate output — has been stuck at around 40% of that of the US since 2008, according to Wang Yiming, a long-time state adviser. Korea and Japan reached 60% and 80% of US productivity, respectively, before their economic rise relative to the US began to stall. It will be an “uphill battle” for China to push for faster productivity gains, Wang said. (…)

• China Manufacturing Outpaces Economy for Third Straight Quarter

Manufacturing expanded 6.2% last quarter, according to detailed gross domestic product data released Tuesday. That was faster than the 4.7% real growth in the overall economy and kept the sector’s contribution to total activity at 27%, matching the previous quarter’s one-year high. This strength contrasts with the shrinking real estate sector, which contracted for a fifth quarter in a row, the data showed. (…)

• US Tariffs at 60% Would Halve China’s Growth Rate, UBS Says

Trump was reported earlier this year to be considering a flat 60% tariff on Chinese imports. If that happened, it would cut 2.5 percentage points from China’s gross domestic product in the year that follows, according to a report from UBS economists published Monday.

The forecast is based on an assumption that some trade is diverted via third countries, China doesn’t retaliate and other nations don’t join the US in imposing levies. Half of that drag would come from the drop in exports, while the rest would be from the hit to consumption and investment, they wrote. (…)

UBS forecasts China to expand 4.6% next year and 4.2% in 2026. That rate would be reduced to 3% for both years even with stimulus to counteract the effect of any tariffs, they estimated.

The government may use fiscal measures and ease monetary policy to mitigate the impact of a drastic tariff hike, with funding likely to come from issuing special treasury bonds, the report said. The Chinese central bank may let the currency depreciate 5% to 10%, the economists wrote.

China’s Economic Growth Comes in Worse Than Expected, Adding Pressure on Xi GDP expansion slowest in five quarters as demand struggles

Gross domestic product expanded 4.7% in the second quarter from the same period a year earlier, weaker than all except one of 28 estimates in a Bloomberg survey of economists. Retail sales rose at the slowest monthly pace since December 2022, showing a flurry of government efforts to juice confidence have done little to reinvigorate the Chinese consumer. (…)

China’s housing crisis remained a significant drag on the world’s second-largest economy, with new-home prices in major Chinese cities falling for the 13th straight month in June. Underscoring the weak confidence caused by that slump, China marked its fifth period of deflation in the second quarter, extending the longest slide of economy-wide prices since 1999.

A government program to subsidize the replacement of old vehicles and home appliances was having mixed effects. the data showed. (…)

Illustrating China’s struggle to stimulate household spending, retail sales of cars fell 6.2% in June despite new financial incentives, the steepest decline in more than a year. Home appliances and audio-video equipment decreased 7.6% last month, the worst since 2022.

Companies were more responsive to the government’s efforts. Growth in purchases of equipment and instruments exceeded 17% in the first half of the year, dwarfing a 6.6% increase in 2023, as factories sought to comply with new environment regulations accompanying the subsidies.

Goldman Sachs Group Inc. cut<?XML:NAMESPACE PREFIX = “[default] http://www.w3.org/2000/svg” NS = “http://www.w3.org/2000/svg” /> its China GDP growth forecast to 4.9% from 5% for this year, a downgrade that still puts the country on track to meet its annual goal of around 5%.

The National Bureau of Statistics said in a statement accompanying the data that the growth slowdown in the second quarter was due to short-term factors such as extreme weather and rain downpours and floods. It also reflected the economy is facing more difficulties and challenges, with the problems of insufficient domestic demand and clogged domestic circulation remaining, the NBS said. (…)

China didn’t disclose much about the first day of the closed-door meeting of its Central Committee on Monday, announcing only that it had started and Xi explained a plan on “deepening reform and advancing Chinese modernization.” (…)

China Home Prices Fall Sharply Despite Latest Rescue Plan

New-home prices in 70 cities, excluding state-subsidized housing, dropped 0.67% from May, when they slid 0.71%, the most since October 2014, National Bureau of Statistics figures showed Monday. Values of existing homes declined 0.85%, compared with a 1% decrease a month earlier. (…)

Price declines deepened from a year earlier. New-home prices slid 4.9% on average and used-home values tumbled 7.9%, the statistics bureau said. (…)

One bright sign was an improvement in residential property sales, which narrowed declines to 13% in June from a year earlier, according to Bloomberg calculations based on figures for the first six months. That compares with a 28% year-on-year drop in May. (…)

Funding for developers has stayed weak even after the government drew up a “white list” late last year of property firms that are eligible for loans. A broad gauge of financing for builders, including loans, bonds and proceeds from home sales, shrank 23% from a year earlier, separate data showed Monday.

While slightly more cities saw new-home prices rise from a month earlier, the first such improvement in three months, the recovery has been skewed to bigger cities and second-hand homes, BI’s Hung said on Bloomberg Television. (…)

Goldman Sachs’ take:

China’s Q2 GDP growth came in well below market expectations, while June activity data were mixed. This set of data highlighted the continued, significant cross-sector divergences in the economy — strong exports and manufacturing activity, relatively stable services consumption (in volume terms), and still-depressed property activity.

Industrial production growth remained solid in June, as the support from strong export growth has somewhat offset the distortions from the number of working days. Fixed asset investment growth rose slightly, mainly driven by the improvement in infrastructure investment, despite still-depressed property investment and adverse weather conditions in South China. By comparison, growth in retail sales fell notably and missed expectations in June, in line with sluggish tourism revenue growth during the Dragon Boat Festival and the soft 618 Online Shopping Festival.

Despite the recent round of housing easing, property-related activity remained depressed in June. Incorporating Q2 GDP outturns and NBS revisions to historical sequential GDP growth estimates mechanically lowers our 2024 full-year GDP growth forecast to 4.9% from 5.0% previously, but lifts our 2025 growth forecast to 4.3% from 4.2%.

Canada’s Freeland Hints at Broader Trade Action Against China

Canada’s finance minister said she’ll hold talks next week with business and labor groups about erecting trade barriers against Chinese-made vehicles — and suggested the government may even go beyond autos. (…)

“Geopolitics and geoeconomics is back. That means that Western countries— and very much the US — is putting a premium on secure supply chains and is taking a different attitude towards Chinese overcapacity,” she said. “And that means that Canada plays an even more important role for the United States.” (…)

US Producer Prices Move Higher as Service Provider Margins Climb PPI increased 0.2% in June from a month earlier; 0.1% expected

Compared with a year ago, the PPI rose 2.6%. (…)

The PPI report showed services costs increased 0.6%, with nearly all of the advance tied to a 1.9% jump in margins at wholesalers and retailers. Goods prices fell 0.5%.

Stripping out food, energy and trade, a less-volatile measure favored by many economists, prices were unchanged. Compared with a year ago, the gauge moderated to a 3.1% rate. (…)

“The PPI components that feed into the Fed’s preferred PCE deflator inflation measure were significantly lower than expected for June and it looks like May’s PCE gain could be revised down too, albeit only slightly,” Paul Ashworth, chief North America economist at Capital Economics, said in a note.

Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, fell 0.2% — the third decline in the last four months.

Big Banks and Customers Continue to Feel Pressure From Higher Rates JPMorgan and Wells Fargo report a drop in profit, while Citigroup’s profit rises thanks to cost-cutting measures

JPMorgan Chase, the biggest U.S. bank, and Wells Fargo both reported a drop in second-quarter profit Friday. Citigroup posted a rise in profit, driven in part by the bank’s cost-cutting measures, but set aside more provisions for potential losses in its credit-card business.

Banks of all sizes have struggled to adapt to the Federal Reserve’s faster-than-expected interest-rate increases. At first, rising rates boosted profits at America’s biggest banks, which were earning more on their loans while facing little pressure to pay customers more interest on their deposits. Yet competition for customers’ cash has heated up, crimping banks’ net interest income—the difference between what banks pay out on deposits and charge on loans. The rate increases also have squeezed some of the banks’ borrowers, causing them to fall behind on their loan payments. (…)

JPMorgan’s second-quarter profit declined 9% year-over-year to $13.1 billion. That figure excludes one-time items, including a $7.9 billion gain on an exchange of the bank’s shares of Visa.

JPMorgan’s reported net interest income rose to $22.7 billion, up 4% versus a year earlier. It was down from the previous quarter for the second period in a row, however, a sign that banks are having to pay up more for deposits.

Wells Fargo, whose business mix leans more heavily toward consumers than its peers, reported a second-quarter profit of $4.91 billion, down 1% from a year earlier. The San Francisco-based bank predicted net interest income would fall between 8% and 9%. (…)

Investment banking, trading, asset management and wealth management all benefited from improving confidence by corporate executives and investors.

JPMorgan reported a 46% increase in investment-banking revenue and Citigroup posted a 60% jump, though it slipped from the first quarter of this year. Wells Fargo’s fees were up 38% from a year ago but, like Citi, slipped from the previous quarter.

Credit-card loans rose faster than spending at all three banks, a sign that more borrowers carried over balances month to month.

“When you really dig into what’s happening across different consumers, the folks on the lower end of the wealth or income spectrum are struggling more,” Wells Fargo Chief Financial Officer Mike Santomassimo said on a call with reporters.

JPMorgan’s credit-card arm—the biggest in the country—said charge-offs on loans rose by nearly two-thirds from a year earlier. The rise in part reflected a normalization from years of historically low levels, Chief Financial Officer Jeremy Barnum told reporters.

But lower-income consumers have started to shift spending to nondiscretionary from discretionary purchases, which is historically a sign of weakness, he said.

Meanwhile, Citi finance chief Mark Mason said consumers with lower credit scores were spending less and delinquencies were up, though he saw possible signs of improvement. By June, more were catching up on their payments. (…)

• Citi Shutters Unused Credit Card Accounts With Losses Soaring

Citigroup Inc. is shuttering unused credit card accounts as a growing number of customers fall behind on their payments.

The bank has also increased its capacity for collecting bad debts as part of its efforts to manage losses, Chief Financial Officer Mark Mason said on a conference call with journalists. That work has also included decreasing customers’ credit-card limits if they aren’t using them and tightening underwriting to ensure new accounts go to customers with higher credit scores.

“We’re watching the intent to pay very closely,” Mason said. “We’re constantly monitoring and managing this.”

(…) With moves like proactive credit line decreases or shuttering unusued accounts, banks are trying to avoid becoming a customers’ lender of last resort right as they’re facing trouble. (…)

Citigroup’s total provisions for credit losses were $2.5 billion in the second quarter, up from $1.8 billion in the same period a year earlier. That included $1.93 billion in net credit losses tied to its US personal banking division. (…)

The bank is not alone: Wells Fargo & Co. and JPMorgan Chase & Co. each saw net charge-offs from their credit card businesses soar more than 60% in the second quarter compared to a year ago. (…)

The bank now expects its full year net charge-off rate for the branded cards business — which is home to its popular proprietary cards like the Double Cash card — to be between 3.5% and 4%. That business finished the quarter with a net credit loss rate of 3.82%.

In retail services, that rate is expected to be between 5.75% and 6.25%, though the company warned it’s likely to be in the higher end of that range. (…)

EARNINGS WATCH

From LSEG IBES:

27 companies in the S&P 500 Index have reported earnings for Q2 2024. Of these companies, 81.5% reported earnings above analyst expectations and 11.1% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 79% of companies beat the estimates and 16% missed estimates.

In aggregate, companies are reporting earnings that are 3.6% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.2% and the average surprise factor over the prior four quarters of 7.3%.

Of these companies, 51.9% reported revenue above analyst expectations and 48.1% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 62% of companies beat the estimates and 38% missed estimates.

In aggregate, companies are reporting revenues that are 0.7% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 1.2%.

The estimated earnings growth rate for the S&P 500 for 24Q2 is 9.6%. If the energy sector is excluded, the growth rate improves to 10.0%.

The estimated revenue growth rate for the S&P 500 for 24Q2 is 4.5%. If the energy sector is excluded, the growth rate declines to 4.3%.

The estimated earnings growth rate for the S&P 500 for 24Q3 is 8.3%. If the energy sector is excluded, the growth rate improves to 9.4%.

• Ed Yardeni:

The S&P 500’s Q2-2024 EPS estimate of $59.22 didn’t change from the start to the end of the quarter. Typically, there’s a decline as the quarter progresses (a 2.4% drop for Q1-2024, a 5.9% drop for Q4-2023, and an average decline of 4.0% in the 120 quarters since consensus quarterly forecasts were first compiled in 1994). The quarter’s 0% change is great news and implies yet another strong earnings surprise.

The MegaCap-7 group of stocks (i.e., Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) is expected to record y/y earnings growth of 28.3% in Q2-2024—down from levels in the 50%-56% ballpark for the three prior quarters but close to the year-earlier 28.0%. Looking ahead to Q3-2024, analysts expect y/y earnings growth to decelerate even further to 15.7% as four of the MegaCap-7 companies slow to single-digit growth and Nvidia’s forecasted growth drops to 71.9% from 132.5% in Q2-2024.

Looking at the data without the MegaCap-7 group is telling as well. S&P 500 earnings excluding the MegaCap-7 are expected to rise 5.7% in Q2 after Q1 growth of 0.1% ended a six-quarter string of declines. We think the typical earnings surprise hook again in Q2-2024 will easily result in high-single-digit percentage y/y growth for the S&P 500 excluding the MegaCap-7.

The breadth of positive three-month forward earnings growth rates among the S&P 500 continues to widen. (…) We also expect lots of positive earnings guidance, especially about how AI might already be contributing to cut costs and to boost productivity.

AI’s missing revenues (Axios)

(…) Newly published reports from Goldman Sachs, Barclays and Sequoia Capital have crunched the numbers on how much has been and will be spent on AI-related infrastructure, and how much extra revenue companies will need to make all that spending worth it.

“Overbuilding things the world doesn’t have use for, or is not ready for, typically ends badly,” Goldman Sachs head of global equity research Jim Covello warns.

• Sequoia’s David Cahn cautions against “the delusion that we’re all going to get rich quick, because [artificial general intelligence] is coming tomorrow.”

Goldman Sachs projects that companies and utilities will spend about $1 trillion on AI capex in the coming years.

The lack of revenue is at the core of the skepticism.

• Cahn notes that OpenAI is still generating the bulk of AI-related revenue right now, and its annualized revenue has been pegged at a mere $3.4 billion.
• Even his generous predictions of $5-$10 billion in annual revenue from Big Tech (from Google and Meta to Tencent and Tesla) still leave a giant hole of $500 billion in revenue just to make up for 2024’s infrastructure investment.

Barclays estimates that AI capex by 2026 will be sufficient to support 12,000 AI products of the scale of ChatGPT.

• “We do expect lots of new services that will bring some of this bull case to light, but probably not 12,000 of them,” Barclays analysts write.
• Meanwhile, Goldman’s Covello points out that even Salesforce, which has been aggressively spending on AI, showed little revenue boost in its Q2 financials.

Other unknowns include whether AI tech will become cheap enough to generate significant cost savings, whether it’ll solve the kind of highly complex problems that would make it worth the price, and whether we’ll be able to supply the energy needed to keep up with AI’s growth.

Tech leaders don’t see “overbuilding” as a dirty word.

• They remember how the dot-com bubble overbuilt telecom capacity before the bust of 2000-2002 wiped out legions of investors. But within a handful of years, all that capacity — and plenty more — was put to good use.

Generative AI’s topline benefits are not arriving anytime soon, realists argue.

Stephen Roach Warns of Disaster From Our ‘Sinophobic’ China Policy The former chairman of Morgan Stanley Asia warns of an accidental conflict.

One of the rare areas of bipartisan consensus in the US right now is taking a tough line on China. We saw President Trump put tariffs on Chinese goods, and the Biden administration has only added to them. A second Trump administration may add to them even further. Meanwhile, we’re increasingly placing export restrictions on various technologies, such as semiconductors. Stephen Roach, the former chairman of Morgan Stanley Asia and now a fellow at Yale Law School, foresees disaster from this. He sees an explosion of Sinophobia, with policymakers misreading China and ushering us into a new Cold War, where the risk of some kind of accidental conflict will inevitably rise. In this episode of the podcast, we talk about the current tensions, how they compare to the US-Japan trade tensions in the 1980s, and how things could go bad.

American Idle

Via ADG:

From Bloomberg:

Boeing Co. has notified some 737 Max customers in recent weeks that aircraft due for delivery in 2025 and 2026 face additional delays, another reminder that production of its cash-cow jetliner faces a long road to recovery.

The plane maker has cautioned that delivery timelines continue to slip by three to six months on top of already-late handovers, according to people familiar with the matter. In some instances, deliveries scheduled for next year have spilled into 2026, said the people, who asked not to be identified as the discussions are confidential.

On the bright side, what’s safer than an undelivered plane?