Defense Contract Spending Declines $66 Billion from Fiscal Year 2009 to 2015

The impact of defense contract spending cuts has been and will continue to be uneven across regions and states. This analysis shows which metropolitan statistical areas (MSAs) have been most impacted by defense contract spending cuts. At the aggregate level, some of the largest MSAs have seen the most dramatic cuts from fiscal year 2009—the peak nationally of DoD contract spending—to fiscal year 2015, which is the most recent fiscal year of data available. On a per capita basis, however, the 10 largest declines in defense contract spending were experienced in MSAs with populations of less than 500,000.

Department of Defense (DoD) contract spending grew at a strong pace in the first decade of the 21^st century, but has been in decline since fiscal year (FY) 2010 based on Chmura’s proprietary FedSpendTOP data.[1]^,[2] Spending peaked at $336.7 billion in FY 2009 and has since fallen by 19.6% to $270.7 billion in FY 2015.[3] Contributing to the decline was the Budget Control Act of 2011 (sequestration took effect in 2013) and the drawdown of U.S. forces in both Iraq and Afghanistan.

While the Washington, D.C. MSA—home to the headquarters of several large defense contractors including Lockheed Martin, General Dynamics, and Northrop Grumman—experienced the largest drop in defense contract spending ($6.5 billion) from FY 2009 to 2015, on a per capita basis the decline was only $1,072; this was the 31^st largest per capita decline in defense contract spending among the MSAs. Defense contract spending fell $2.3 billion in the New York metropolitan area from FY 2009 to 2015; this, however, only represented a loss of $116 on a per capita basis.

In contrast, a $2.3 billion decline in the Oshkosh MSA represented a loss of $13,378 per person, the largest per capita decline among all MSAs over this period. The Oshkosh MSA is home to the Oshkosh Corporation, a military vehicle manufacturer, which has reduced its workforce in response to declining defense contract spending.

From FY 2009 to 2015, defense contract spending decreased by $301.9 million or $2,891 per capita in the Lima, Ohio MSA; the Joint Systems Manufacturing Center, a government-owned, contractor-operated tank production facility in Lima operated by General Dynamics Land Systems, has experienced a production hiatus as the Army shifts production from the M1A2 Abrams fleet to the M1A3.      

The labor market impact of defense contract spending cuts can vary widely depending on the type and nature of the defense contract 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. It stands to reason, however, 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 large and small.

[1] The U.S. federal government’s fiscal year begins on October 1 of the previous calendar year and ends on September 30. For example, FY 2001 began October 1, 2000 and ended September 30, 2001.

[2] FedSpendTOP data are derived from USASpending.gov data but provide a more accurate picture of federal spending based on the time and place of performance when compared with published federal awards data. The data are adjusted for the length of the contract as well as for an associated subcontract’s place of performance (i.e., regional spending is based on place of performance with out-of-region awards subcontracted into the area added in and in region awards subcontracted out of the region subtracted out); FedSpendTOP data also include purchases by non-DoD agencies which end up in DoD products and have been corrected for errors identified during Chmura’s quality control process.

[3] In nominal dollars (i.e., not adjusted for inflation).