Says Cuts Would Lower GDP Growth by 25 Percent

An economic impact analysis commissioned by the Aerospace Industries Association projects more than one million American jobs could be lost as a result of defense budget cuts if the deficit reduction select committee fails to reach agreement on alternative balanced budget solutions, triggering automatic cuts to defense which could reach $1 trillion.

The Aerospace Industries Association lobbies on behalf of aerospace and defense manufacturers.

Dr. Stephen S. Fuller, Director of the Center for Regional Analysis at George Mason University and Economic Modeling Specialists Inc. (EMSI) conducted the analysis on behalf of AIA. “Our analysis reveals bleak outcomes for both the defense industry and the economy as a whole if the budget sequestration trigger is pulled and $1 trillion is cut from defense,” said Dr. Fuller.

AIA President and CEO Marion C. Blakey (pictured) insists, “Congress must find budget deficit solutions that don’t sacrifice the jobs of those who supply the American warfighter. We cannot add .6 percent to the current 9.1 percent rate of unemployment, it would devastate the economy and the defense industrial base and undermine the national security of our country,” she added.

Commenting on the findings, Tom Buffenbarger, President of the International Association of Machinists and Aerospace Workers said “the spending cuts of the Budget Control Act enacted last summer place at risk the jobs of highly skilled, highly motivated workers. We can ill afford to idle these men and women and the machines they operate indefinitely,” Buffenbarger added.

Dr. Fuller and EMSI concluded that under the scenario of a $1 trillion cut to defense spending, an option under consideration by the budget deficit “Super Committee,” the flow down effect from the aerospace and defense industry to its supply chain and communities is significant, particularly given two factors. The defense industry has a notably high rate of subcontracted work flow and systems with high component volumes, driving job loss directly to program partners and the supply chain.

Dr. Fuller’s analysis was based on an annual reduction of $45.01 billion to the military modernization accounts from which the aerospace and defense industry derives its revenues. “The total impact each year of a $45 billion cut would be to reduce GDP by $86.456 billion. This is equivalent to 25 percent of the projected annual increase in GDP for 2013 and its loss would reduce currently projected growth for 2013 from 2.3 percent to 1.7 percent,” Fuller said.

Also, given the relatively high wages earned by US aerospace and defense workers, consumer spending in communities in every state would decline significantly. “The multiplied impact of aerospace and defense workers losing their job is very simple – purchase of consumer goods goes down overnight, homes become unaffordable and the housing crisis is compounded, and so forth,” said Dr. Fuller. “The ten year defense budget cut will be felt in terms of layoffs starting in 2012, escalate and conclude by 2014,” he added.

FMI:  www.aia-aerospace.org