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:

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:

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


Oshkosh-Neenah, WI MSA


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


St. Louis, MO-IL MSA


Tucson, AZ MSA


Memphis, TN-MS-AR MSA


San Antonio, TX MSA


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


Riverside-San Bernardino-Ontario, CA MSA


Hartford-West Hartford-East Hartford, CT MSA


MSATotal Defense Contract Cuts 2010 to 2012$ Cut per Capita

Oshkosh-Neenah, WI MSA



Johnstown, PA MSA



Hinesville-Fort Stewart, GA MSA



Manhattan, KS MSA



Crestview-Fort Walton Beach-Destin, FL MSA



New Orleans-Metairie-Kenner, LA MSA



Columbus, GA-AL MSA



Tucson, AZ MSA



York-Hanover, PA MSA



Binghamton, NY MSA



MSATotal Defense Contract Gains 2010 to 2012

Seattle-Tacoma-Bellevue, WA MSA


Portland-South Portland-Biddeford, ME MSA


Phoenix-Mesa-Scottsdale, AZ MSA


Amarillo, TX MSA


Norwich-New London, CT MSA


MSAFederal Contract Gains 2010 to 2012$ Gains Per Capita

Amarillo, TX MSA



Norwich-New London, CT MSA



Portland-South Portland-Biddeford, ME MSA



Bellingham, WA MSA



Huntsville, AL MSA



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

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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