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

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.

Is Your Metro Area on the Edge of a Fiscal Cliff?

The topic of sequestration is on everyone’s mind today and the nation’s legislators are faced with some tough decisions. Sequestration, by definition, refers to automatic across-the-board spending cuts that will take place if a budget deal isn’t cut by tomorrow.

While many state and local officials are putting pencil to paper to see how the cuts will affect them directly, it’s important to remember that the federal government spends more than $500 billion each year through contracts with private industry in the United States. These funds make their way into regional economies as the federal government procures goods and services, supporting businesses and jobs.

So which metro area economies are most dependent on revenues derived from contract work for the federal government? Which ones are most at-risk due to the impending budget cuts? We took a look at federal contract spending data and assigned it a metro geography based on where the awarded firm performed the work. Then we divided that amount by the total number of jobs in each region.

The interactive map below shows how federal contract dollars are concentrated in the nation’s 369 metro areas. At the top of the list is the Pascagoula, MS, a small metro area with businesses employing about 55,000 people. Pascagoula is home to naval shipbuilding giant Ingalls Shipbuilding, which was founded there on the banks of the Pascagoula River in 1938. Ingalls is one of Mississippi’s largest employers. Over the past three years, federal contract spending has averaged $3 billion a year in Pascagoula. That’s more than $54,000 federal dollars spent locally for each job in the metro area.

Will sequestration happen? That remains to be seen. It’s safe to say federal spending will be reduced in the future, perhaps with a bit more surgical precision than sequestration mandates. Regions should understand their exposure as it relates to these issues and be prepared to support businesses (and employees) who could be impacted.

You can download the full list here.

The Top 10 Metros Area by Federal Contract Concentration

Metro AreaFederal Contract SpendingFederal Defense Contract SpendingFederal Contract Spending per Job

Pascagoula, MS MSA




Oshkosh-Neenah, WI MSA




Huntsville, AL MSA




Norwich-New London, CT MSA




Amarillo, TX MSA




Kennewick-Richland-Pasco, WA MSA




Idaho Falls, ID MSA




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




Jacksonville, NC MSA




Hinesville-Fort Stewart, GA MSA




Source: JobsEQ® and FPDS.
Employment data as of 2012q4, Spending data FY2010-12 as of 1/15/2013.


You can download the full list here.

Virginia, Florida and Pennsylvania Among States To Be Hardest Hit By Sequestration writes about a research report published by George Mason University & Chmura Economics and Analytic:

With sequestration looming, the Obama administration told contractors to not warn employees that they may be laid off due to massive cuts to defense spending. The political calculus here is obvious, if contractors comply with the Obama administration’s directive, workers across the country —including those in the swing states of Virginia, Florida and Pennsylvania— will not receive notifications under the WARN Act. The WARN Act is designed to protect “workers, their families, and communities by requiring most employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs.” Many commentators believe that such notifications, if sent, might impact the outcome of the presidential election.

Of course, sequestration will have an impact beyond politics, with economists predicting a devastating impact on the national economy and the economy of Virginia, Florida, and Pennsylvania. According to a research report published by George Mason University & Chmura Economics and Analytics, total job losses across those three swing states would total 365,484 people. On a national level, the report states that implementing the cuts in the Budget Control Act of 2011 “would severely impact the economy in 2013 with these losses reflected in reduced Gross Domestic Product (GDP) and a broad based loss of jobs that could add an estimated 1.5 percentage points to the current U.S. unemployment rate.” The report continued, “[a]s currently formulated, the automatic spending cuts affecting DOD and non-DOD agencies’ discretionary spending authorities beginning January 2, 2013 will: Reduce the nation’s GDP by $215 billion; Decrease personal earnings of the workforce by $109.4 billion; and, Cost the U.S. economy 2.14 million jobs.”

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