Reality Check # 428…

Posted on by March 6, 2013
Defense News has some detail on projected job losses in the Defense industry in the US and in our partner countries, and it’s NOT good…


This is the high side…

The AIA-sponsored report, released Oct. 25, was written by Stephen Fuller, who directs the Center for Regional Analysis at George Mason University in Virginia. For his calculations, Fuller used an input-output model and postulated that the congressional supercommittee would cut $1 trillion from the defense budget over a decade – $100 billion a year, of which $45.01 billion would be acquisition funding.
That would kill 352,000 defense jobs directly and some 650,000 more indirectly, he wrote. The cuts would siphon $59.4 billion out of the economy every year, docking national economic growth by 25 percent and adding 0.6 percent to the unemployment rate.
Fuller estimated that prime contractors would lose 164,000 full-time-equivalent jobs immediately, which would kill 108,000 jobs at first-tier suppliers and 80,000 more in the next tier. Those direct job losses would lead to almost twice as many indirect ones, he wrote.



And this is the LOW side…

Moreover, Garrett-Peltier said, Fuller nearly doubles the actual number of jobs that depend on the defense industry and overstates the “induced impacts” of job losses.
“For every one job, Fuller assumes 1.85 jobs – almost two additional jobs – are created,” she said.
Using a widely accepted model, Garrett-Peltier said, she found the inducted impact to be closer to 0.9 of a job.
Using Fuller’s assumptions but without the fourth level and a “more reasonable” induced impact number, Garrett-Peltier said she calculated job losses at about 520,000, roughly half the AIA’s estimate.
And she said it’s unlikely that the Pentagon will actually lose $100 billion a year.
“That’s a worst-case scenario,” she said.
Berteau, who said he had not done a detailed analysis of the AIA numbers, noted that the job losses would in any case be spread over a decade.
“This is not a million pink slips in one month,” he said.

While they may say that, most of the major defense contractors are already laying off people, at this point I ‘believe’ the totals are less than 100,000 jobs lost total across the contractors.


You can read the full article HERE.


Another point is that these are high tech/scientist/engineer/design teams type jobs, not line types…


Monday after the last shuttle landed there were 3000+ layoffs at NASA; how many more of our best and brightest scientists/engineers/etc. are we going to lose?  At least one former rocket scientist is currently working in a meat market in Texas…


If you don’t maintain the base, then when you DO have a need, the odds are it will not have an industry that will support it, e.g. steel production, of which most of the structural steel we see used in the US today comes from China…


There is also another report circulating written by an analyst at Booz , Allen, Hamilton that paints as gloomy a picture, and echos the above article.  It may come to the point that there are only 3 or 4 defense contractors left, and each one will have ONE area of ‘specialization’ e.g. air, surface, subs, Tanks/trucks, C4I, and no competition. If that happens, expect the administration to then start breaking these companies up under Anti-Trust laws (union or no union).


Before the question gets asked, I’ll answer why these companies can’t compete for ‘regular’ business…


It’s the overhead (specific accounting procedures/audits, security requirements, Information Assurance requirements, contract management requirements, etc.) and the people to support those ‘required’ government requirements that price most of these companies out of the ability to compete…  Most of the time the average worker’s overhead rates work out to about 145% of the labor rate, whereas a defense contractor’s overhead rate is seldom under 250% and usually higher.  Also most defense contractors are limited to 8% profit… 


So we’re counting on this “Super Congress” to save the Military, and somewhere between 1/2 million and 1 million high tech jobs just in defense…


I really doubt it… sigh…


And yes, it’s REALLY been a Monday all day, even if it is Halloween, this is a trick or treat I’d rather not have…

Comments

Reality Check # 428… — 14 Comments

  2. Yep, so can only cut so deep before you lose your depth of experience, or what we call “Tribal Knowledge” where I work.
    Some things just CANNOT be written down, and passed on to others. In extremely complex programs, it’s vital to have that depth of knowledge to explain where the systems came from, and how (and WHY) they’re the way they are today.
    When we came out of Chapter 11, and some of the previous employees would NOT come back, we brought guys back out of nice comfortable retirements in order to tarin those of us who didn’t have much experience on the systems the Old Crows had worked on.
    We were very fortunate to have them come back.

  3. But..but, we won!
    Bammy ended the war[s] and we don’t need all that iron/planes/boolits/etc., etc.
    There’s an election coming up yannow.

  5. DB- Gah, you HAD to say that didn’t you…

    drjim- Yep nail on head my friend, as you’ve so ably demonstrated!

    Skip- My new mantra is Relect- NONE!

    Danny- Not unless you’re one of the ‘protected’ class… 🙁

  6. This is what happens when they ignore the debt for so long. By putting off the hard problems longer, they’ve made the landing harder not softer.

  7. It’s a complex web we’ve woven… And I don’t want a single cut to Defense as long as we have boots on the ground – I’m too afraid of a domino effect leaving some soldier vulnerable.

  8. I lost my job last year when we won the GWOT. Yea, I missed it on the news too!

    At least half the DOD contractors I know were not rehired this year so the cuts will be even deeper.

    The technical pool at DHS was very shallow before and leaned on contractors for expertise. I know the same thing goes on at DOD.

    It will be a big deep hole to try and dig out of in the future.

    Gerry

  10. Andy- Excellent point, and it’s NOT going to be pretty… short OR long term

    PH- I agree, but they don’t give a crap on the hill about the military.. takes too much away from their precious entitlements…

    Gerry- I’m not sure we CAN dig out…

    WSF- Yep, also heard some of the military colleges may not get the officer commissioning slots they are expecting in grads in 2012.

  11. The defense industry is now getting the squeeze that the rest of us went through during the last decade. That’s not a hit, it’s just a fact.

    Since 2000, I survived 7 layoffs by my old employer. I was laid off in 2007 and recalled four months later with a 10% cut in pay and job level. I was laid off a second time in December 2010. By that time, I had enough service for a year of severance. When that was gone, I retired.

    All in all, I was fortunate. So many others weren’t/aren’t. Locally, and I have no idea why, employers won’t hire if you’ve been laid off more than six months.

    For over a decade, companies have been shrinking. Pressure from investment groups, the feds and added more and more expense to the cost of doing business. The defense industry, due to reporting and the multitude of regulations, expanded far beyond the needs of non-governmental contracts. When those contract go, or are reduced, the industry is left woefully over-staffed.

    I don’t like it. I can see why it will happen. The leftist have finally gotten around to raping your industry as they have the rest of us.

    You immediate concern is: how can I survive? If retirement isn’t an option, you must look out for #1. That is the worst part. I felt a strong loyalty to my former employer. Sometimes loyalty just isn’t enough.

  12. How better to force a welfare state than to eliminate even more jobs?

    How better to assure a take-over by One World Order than to dismantle the infrastructure that supports American “boots on the ground” – even if it gets to be American ground?

    2012 may be too late. O promised change. Can’t say he didn’t deliver.
    Q

  13. Crucis- You are correct, I remember your posts on those iterations…

    Quiz- Yep, REAL change… sigh…

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