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USA Today: Defense Spending Cuts Could Kill 1 Million Jobs

Monday, 04 Feb 2013 07:56 AM

By John Morgan

Steep defense cuts in store for America may eliminate 1 million jobs directly and then have ripple effects across the nation’s cities and towns, according to USA Today.

As Washington debates sequestration — automatic budgets cuts that could slash $600 billion in military spending — the defense industry and towns that depend on defense contracts fear sequestration is only the tip of the iceberg.

That’s because earlier debt-ceiling agreements provided that military spending, which peaked at $716.3 billion in 2012, must fall to $589 billion by 2014.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

“We’ve assumed for planning purposes that the worst-case scenario will happen, that there will be a trillion-dollar defense budget reduction,” said Dennis Mullenberg, president of Boeing’s defense business, at a recent investor conference.

How dire things get will likely differ from company to company — and from city to city, USA Today reported.

“In some ways, it’s a wake-up call,” said Stephen Fuller, a George Mason University economist. “You have to be less dependent on defense, because there’s not going to be as much money around.”

Half of the spending cuts would likely be concentrated in about 15 states, from Virginia to Texas, according to Moody’s Analytics.

Major contractors will likely suffer less than will smaller contractors, because big contracts tend to be multiyear deals with huge backlogs, according to USA Today.

The indirect ripple effects of cutbacks are expected to go beyond the direct defense job losses.

Local defense cutbacks “would be a massive problem,” said Steve Andrews, president of the United Auto Workers local that represents Bell Helicopter workers in Fort Worth, Texas. “The cars that get sold here, the houses that get bought and sold, depend on defense.”

Across the United States, 47 metro areas get more than 5 percent of local gross domestic product (GDP) from defense contracts, according to Moody’s.

By some accounts, the fact that U.S. GDP contracted in the fourth quarter of 2012 could be blamed on military spending cutbacks.

The 0.1 percent drop in GDP for the fourth quarter was attributed to a 22 percent drop in defense spending, which alone trimmed an estimated 1.28 percentage points from GDP, according to Business Insider.

“In less than 30 days, unless Congress and the White House act, sequestration will kick in, leading to higher unemployment, reduced tax revenue and lower consumer spending,” said Marion Blakey, CEO of the Aerospace Industries Association, a lobbying group.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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