Research Finds $17 Billion in Business Lost Due to Defense Cuts

Reveals Top Ten Most Impacted Metros in the Nation

Nearly three years of continuous budget wrangling in Congress has left the fragile U.S. economic recovery limping along, in many respects, instead of galloping. Sequestration and the Budget Control Act have put the squeeze on both defense and non-defense spending. In this environment, Chmura has spent a great deal of time helping state lawmakers, city officials, and other civic stakeholders understand the economic impact of these defense cuts at the community level. What does it mean to your community if a specific defense contract gets cut back or cancelled altogether? To answer these questions, Chmura mapped the supply chain of defense contractors in the nation and analyzed defense spending contract data over the past thirteen years.

First, defense spending is by design a bit opaque as credible and specific national security considerations oftentimes keep U.S. policy makers from telegraphing openly the true nature or extent of specific programs. Second, many defense contracts are multiyear projects, but public documents, such as contract award notices, make it difficult to see how payments to contractors are set to be dispersed or spent in detail. Third, many government contractors, who competitively bid and win large contracts, subcontract many aspects of the work to other firms. Thus, a single contract can impact several disparate communities at different times with different intensities over the life of the contract. Chmura has dealt with these issues by analyzing typical contract payouts and by adjusting these figures to more accurately model the flow of funds to contractors and subcontractors.

To begin answering questions regarding the previous and looming defense cuts, one must first determine how much of the budget is being cut by region. The defense industry is big, and as President Eisenhower famously noted in 1961, the military industrial complex has political momentum all its own that can alter spending based upon the peculiarities of power and influence. The Department of Defense’s spending has declined substantially from its peak in 2010. By 2012, defense spending was already cut by close to 6% (without adjusting for inflation). While these cuts are large and further cuts are expected in 2013 and 2014, they are not unprecedented. In a recent study, the Center for Strategic and International Studies examined real (adjusted for inflation) defense spending cuts since World War II and found that in the aftermath of the Korean and Vietnam wars, and at the end of the Cold War, defense spending cuts were more severe in each case than in the current environment. (For more see the full CSIS report here: http://csis.org/publication/defense-budgets-double-whammy-drawing-down-while-hollowing-out-within)

While the cuts in defense spending are real, they vary greatly across the military by branch and function. For instance, from 2013 to 2014, Army procurement is being cut 3% and Marine procurement will be down 14% while Navy procurement spending is set to rise to $39 billion—a 13% increase from the year before—and Air Force procurement spending is set to increase by 1%. Moreover, the Army’s and the Navy’s Operation and Maintenance budgets will both be cut by 4%, while the Marine’s Operation and Maintenance budget is set to expand by 4% and the Air Force’s by 5%. A public advocacy infographic shop, Timeplots, assembled an impressive infographic depicting the size and scale of the changes in government spending from 2013 through 2014, including defense spending by spending category. See the full infographic here: http://visual.ly/death-and-taxes-2014-us-federal-budget

In order to help make sense of the community impact of the recent pending defense cuts, Chmura created the following analysis to see which metropolitan statistical areas (MSAs) have been most impacted by the recent defense spending cuts. At the aggregate level, some of the largest MSAs have seen the most dramatic cuts in the period from fiscal year 2010 to fiscal year 2012. However, after adjusting for the size of the MSA, several much smaller areas stand out for the level of cuts they have experienced over this period. Similarly, by aggregate dollar figure, a few of the largest MSAs have gained the largest increases in government contracts over this period, but after adjusting for the size of the labor market in these metro areas, several much smaller U.S. metros stand out in terms of the contractual gains.

MSATotal Defense Contract Cuts 2010 to 2012

New Orleans-Metairie-Kenner, LA MSA

-$2,205,619,764

Oshkosh-Neenah, WI MSA

-$1,894,064,198

Washington-Arlington-Alexandria, DC-VA-MD-WV MSA

-$1,486,275,593

St. Louis, MO-IL MSA

-$1,452,512,297

Tucson, AZ MSA

-$1,383,208,070

Memphis, TN-MS-AR MSA

-$1,375,595,134

San Antonio, TX MSA

-$1,207,102,665

New York-Northern New Jersey-Long Island,NY-NJ-PA MSA

-$1,099,061,559

Riverside-San Bernardino-Ontario, CA MSA

-$1,074,130,554

Hartford-West Hartford-East Hartford, CT MSA

-$1,073,509,712

MSATotal Defense Contract Cuts 2010 to 2012$ Cut per Capita

Oshkosh-Neenah, WI MSA

-$1,894,064,198

-$11,342

Johnstown, PA MSA

-$782,445,252

-$5,446

Hinesville-Fort Stewart, GA MSA

-$187,835,293

-$2,411

Manhattan, KS MSA

-$289,552,359

-$2,278

Crestview-Fort Walton Beach-Destin, FL MSA

-$367,857,608

-$2,034

New Orleans-Metairie-Kenner, LA MSA

-$2,205,619,764

-$1,889

Columbus, GA-AL MSA

-$438,654,422

-$1,488

Tucson, AZ MSA

-$1,383,208,070

-$1,411

York-Hanover, PA MSA

-$572,827,209

-$1,317

Binghamton, NY MSA

-$308,778,050

-$1,227

MSATotal Defense Contract Gains 2010 to 2012

Seattle-Tacoma-Bellevue, WA MSA

$2,040,368,382

Portland-South Portland-Biddeford, ME MSA

$1,610,361,678

Phoenix-Mesa-Scottsdale, AZ MSA

$1,581,407,851

Amarillo, TX MSA

$1,311,645,313

Norwich-New London, CT MSA

$1,244,943,132

MSAFederal Contract Gains 2010 to 2012$ Gains Per Capita

Amarillo, TX MSA

$1,311,645,313

$5,249

Norwich-New London, CT MSA

$1,244,943,132

$4,543

Portland-South Portland-Biddeford, ME MSA

$1,610,361,678

$3,132

Bellingham, WA MSA

$476,416,342

$2,369

Huntsville, AL MSA

$584,875,448

$1,401

The labor market impact of these spending cuts can vary widely depending on the type and nature of the defense spending. Every industry in the area will have a different economic impact based on the size of its local supply chain and the spending spillover from its directly employed workers. However, it stands to reason that these spending cuts, as steep as they are, can be a driving force to upset labor markets in many of the nation’s MSAs, both big and small. To learn more about Chmura’s expertise and research regarding defense spending and supply chain mapping, contact us here.

Contract Dollars Gain/Loss per Capita by MSA, 2010 to 2012

Economic impact: Look for the careers with high job opportunities

Originally published on July 8, 2013 in the Richmond Times Dispatch.

Many high school graduates and rising high school seniors are making plans that will impact their work-related opportunities when they graduate from college.

While interest is certainly an important component of career choice, it should be balanced with job opportunities.

Photographers and actors are two careers that high school students think about, but job opportunities are scarce in those fields.

Based on estimates from Chmura Economics & Analytics, 215 photographers work for firms in the Richmond area along with another 363 who are sole proprietors.

On the other hand, an average 538 registered nurses are needed each year in the metro area to fill new jobs or those vacated by retirees or people moving to another occupation.

Along with nurses, accountants and bookkeepers are among the top 10 occupations needed by businesses in the Richmond metropolitan area over the next decade.

Another factor that might help students narrow their career choice is potential earnings.

The State Council of Higher Education for Virginia recently started providing the average first-year earnings (based on the last five years) by degree level along with the earnings by institution where the degree was awarded.

This database consists of graduates employed in Virginia and is not adjusted for the regional cost of living.

There is significant variation by degree and even for the same degree awarded at different institutions.

Registered nurses with a bachelor’s degree earned an average $48,959 for their first year working in the state. Graduates from the University of Virginia at Wise earned $37,492 – at the low end of the scale – compared with $54,765 for Jefferson College of Health Sciences graduates.

In some cases, the skills acquired with a two-year degree earned more than those with a four-year degree.

A graduate with an associate accounting degree made $30,964 for the first year and an electrician with two years of education commanded $36,734.

In contrast, graduates with a photography bachelor’s degree earned $23,035 in the first year while general English majors earned $23,423.

Virginia is only one of a handful of states that compiles earnings by degree and institution. CollegeMeasures.org has packaged the information and made it available in an easy-to-navigate website for students who are trying to decide on a career.

Later this summer, State Council of Higher Education for Virginia plans to make even more information available to the public: average student debts of graduates by program and institution.

With this information in hand, students can consider the debt-to-earnings ratio they may face when they are handed their degree.

Economic Impact: Job market is improving

Originally published in the Richmond Times-Dispatch on May 13, 2013.

The unemployment rate in the Richmond metro area drifted down to 5.6 percent in March.

While that rate is better than the national average of 7.6 percent, the local economy has a way to go before it is fully recovered from the recession.

Employment in the Richmond metro area stood at 628,800 in March — still about 6,600 jobs below the peak of 635,400 jobs in August 2007.

Based on the pace of employment growth in the region during the past year, we should exceed that peak before the end of the year. That job recovery is better than the for nation, which isn’t expected to reach the previous employment peak until July 2014 based on recent growth.

The prolonged recovery from the recession means new college graduates will again face a tight labor market.

Their ability to find a job, however, will vary greatly based on the knowledge and skills they acquired in high school or college.

New graduates hoping to work for professional business services firms might have a hard time finding jobs because those industries are still contracting in the Richmond metro area. For instance, two of the region’s largest law firms reduced employment over the past year, according to the Top 50 list of the area’s largest private employers.

Prospects are much better for new graduates with skills needed in the health care sector.

A little more than 1,600 new health care jobs were added to the metro area during the year ending in March, according to estimates from Chmura Economics & Analytics. Eight of the employers on the Top 50 list are health care related.

Looking ahead, Chmura Economics & Analytics is forecasting a need for an average 2,600 health care workers a year during the next decade in the Richmond metro area.

Of that amount, about 1,000 health care workers are needed annually to fill positions from which people have retired or moved to new occupations.

Even construction is looking promising again. This sector added 1,645 jobs in the Richmond region in the 12 months ending in March, according to the Virginia Employment Commission.

Along with a moderate amount of on-the-job training, cabinetmakers or drywall installers can make an average of about $30,000 in the region, according to the Bureau of Labor Statistics. The average wage of electricians in the Richmond area, which typically requires an apprenticeship, is about $46,000.

Based on our forecasts, next year’s college graduates will see further improvements in the jobs market.

And those students who choose a career path linked to jobs that are in demand by regional businesses will clearly have better prospects upon graduation.

Where the Jobs Are

The golden ticket for most economic development programs is job creation, and the more the better. For folks involved in workforce development, the perfect job would provide a sustaining wage for individuals and families. This ticket has been hard to come by for many communities as the nation’s economy limps forward, offering little in terms of opportunity for a large portion of job seekers in the middle. Chmura’s economists took a look at more than 800 occupations, analyzed employment growth and wage gains that occurred between 2001 and 2011, and identified a few trends that help us understand where the jobs are (and where they aren’t).

We broke occupations into ten groups based on employment and wages earned and analyzed each decile based on job and wage growth. The results demonstrate two troubling facts. First, wages have been mostly stagnant during the ten-year study period, with gains exceeding inflation for only occupations on the high end of the scale. Second, job growth has been mostly isolated to those jobs paying the least and those that pay the most.

Occupation Delines Chart

Over the past ten years, employment growth has been negative for occupations in the middle and it’s a substantial middle, representing more than 60% of the total jobs and wages. The data suggest it’s one part of the explanation for the skills gap – those who lost jobs in the middle may be unwilling to accept a position that pays less than their previous job and unable (because of skills and experience shortfalls) to successfully compete for jobs at the higher end of the scale.