Armed with data from a new study, a defense-industry group is warning U.S. economic growth would significantly decrease if Congress allows the largest possible cuts to the Pentagon’s budget to be made in the coming months.
The Aerospace Industries Association (AIA) unveiled yesterday a study that warns of more than 1 million lost jobs and a 25 percent cut to the projected gross domestic production (GDP) growth under the worst-case scenario for defense cuts. The research was conducted by the Center for Regional Analysis at George Mason University and Economic Modeling Specialists Inc. (EMSI).
“Every sector of the economy across every single state gets impacted eventually,” Stephen Fuller, the George Mason professor who directs the university’s Center for Regional Analysis, said yesterday at a press conference at the National Press Club in Washington.
The study examined the impact on the defense industry and broader U.S. economy if a special congressional deficit-cutting committee and Congress cannot agree by the end of the year on a plan to cut up to $1.5 trillion in federal spending over the next decade. If the Joint Select Committee on Deficit Reduction cannot produce a successful plan, a sequestration process will automatically cut $500 billion to $600 billion in defense funding starting in 2013. That would be in addition to the $450 billion already cut from the Pentagon’s 10-year spending plans by the first wave of cuts approved in the Budget Control Act of 2011.
Tom Buffenbarger, president of the International Association of Machinists and Aerospace Workers, maintained the sequestration would “trigger an economic disaster.”
“My real fear is that cuts of this magnitude could trigger a second recession, one more devastating and depressing than our current one,” he argued at the press club event.
Fuller said he factored the 10-year cuts in defense spending to be $1 trillion, or $100 billion per year. He calculated that weapons procurement and related spending make up 45 percent of the larger defense budget, and thus used the figure of $45 billion for the reduction in Pentagon spending on military equipment in 2013.
He concluded that a $45 billion reduction in that first year alone would lead to the loss of 1 million full-time, year-round equivalent jobs, which he told reporters would remain unfilled for the decade of Pentagon cuts. Of those positions, 353,000 would be defense companies or firms that provide services to the industry. The other lost jobs would “come from the induced spending effects generated by this industry as a result of changes in payroll spending across all sectors of the economy,” a summary of his research findings states.
The study also found the $45 billion cut would lead to an overall loss of $59.4 billion in personal income in and outside of the defense industry, including retail and health jobs tied to the employment of the Pentagon contractors.
Fuller found the $45 billion reduction would reduce the GDP by $86 billion, or 25 percent of the projected annual increase for 2013. This would reduce the predicted growth for that year from 2.3 percent to 1.7 percent, he said.
His research further projects losses in sales throughout the U.S. economy totaling $164 billion, with 71 percent of those sales “occurring as a result of decreased consumer spending by workers directly and indirectly affected by these (Department of Defense) DoD spending reductions–workers having lost their jobs and/or experienced salary reductions.”
The George Mason-EMSI study also concludes that, while the Pentagon spending reductions would affect all 50 states, the $45 billion in reduced spending in 2013 would disproportionally impact the job rolls in 10 states. They are California, Virginia, Texas, Florida, Massachusetts, Maryland, Pennsylvania, Connecticut, Arizona, and Missouri.
The impact of the worst-case defense cuts would be so widespread, the study’s authors say, partly because the defense industry has a significant amount of subcontracted work and makes products that often have many components.
AIA President and CEO Marion Blakey said at yesterday’s event that 10-year defense cuts totaling $1 trillion could lead to an increase to the rate of unemployment of 0.6 percent in 2013. The unemployment rate now is 9.1 percent.
“These projections are based on solid data and analysis and they should bring some sobriety to the debate that we endeavor to put into this discussion we’re having as a country,” she maintained.