You're watching...
Center for Strategic and Budgetary Assessments defense analyst Todd Harrison on how the decrease in defense spending impacts the private sector and ov...
Also in this playlist...
Auto-advance: ON
Auto-advance
This transcript is automatically generated
The defense spending plunged 22%.
In the fourth quarter 2012 this helps to explain why the economy shrank in the last quarter.
At our next guest says the effective cuts this quarter will be even worse joining me now is Todd Harrison.
Is defense analyst with the center for strategic and budgetary assessments heart good to see again thanks for -- it.
Was just finished tell our viewers exactly where we're -- about here it is a huge industry 300 billion dollars.
A year by defense spending as a percent of GDP in 2012.
Was four point 6% but look at this in 2015.
It's gonna drop.
To three point 1% huge drop so this is one reason why we saw the the drop in the GDP last quarter.
But specifically let's get much more detailed what and who are being cut here.
Well the reason for that dropped in defense spending is primarily because of the wars in Iraq and Afghanistan winding down.
So we're seeing that we had been spending up -- 160 billion dollars a year.
On the two wars combined that is come down already -- just 85 billion dollars this year.
So we're gonna see that continue to decline over the next couple years and eventually the war funding will be completely gone -- a lot of what we're saying.
Let me extrapolate from that exactly who's being hurt I would think that a lot of small contractors would be hurt by slowing down for example food service companies that provide yet.
It -- provide the memories were soldiers that that sort of companies being hurt particularly bad right now right.
Right it's the small companies that aren't as diversified so they may only have you know a handful of contracts and when those contrasting expire.
-- can devastate their business and also the service sector DOD contracts for a lot of different types of services not just for our.
Food service but for security services for people to mow the grass you know you name it.
OK now let's talk about a specific company Boeing.
Boeing had 68 billion dollars in revenue last year about half of that was -- from defense contracts how will -- be affected by this.
I think -- and the other major prime contractors aren't little bit better of a position they have.
A strong backlog.
Products that they've already that the government has already obligated funding to buy.
So they've got -- a lot of different product lines they gonna continue.
To produce on this product lines and you need it can we'll continue to buy them.
That's part of a lot of that is funded out of the base defense budget so let let me just stop you there -- for -- because let's just take one project the F 35 mrs.
The latest version of that the stealth fighter.
Are these planes are not cheap there about a hundred million dollars each other -- 103 million dollars each the Pentagon.
Is scheduled to by 2440.
Of them you say they will continue to buy them even with a cuts.
They'll continue to buy them that is the current plan the real risks to programs like -- F 35 right now the sequestration.
As sequestration goes into effect on March 1.
Then every program project activity within the department has to be cut by the same percentage they'll have to be cut by about 9%.
So dead joint strike fighter budget for the current fiscal year will be cut by 9%.
They're currently planning to buy 29 of those -- this year.
That'll have to come back they'll only be able to afford about 26 may be even fewer by the way Fort Worth, Texas is where a lot of these -- are -- and they have already taken steps the town of Fort Worth.
To try to diversify to try to bring -- Other companies by giving tax breaks -- what about a company like Lockheed -- which is.
While while Boeing has 50% of its contracts defense -- Lockheed has almost all of the defense contracts they've got to take a hit from this.
They absolutely well but.
That buffer that they have this the backlog of orders that they -- have in the pipeline.
Money that's already been obligated by the Department of Defense when they've -- -- contract signed day.
And obligated that money for.
To buy something.
That's not gonna be affected by sequestration or the budget drawdown that we're talking about so lucky he'll continue to be able to work through that backlog and build the systems have argued that his contract by DOD and finally we got it just focus on -- what what you say this quarter's going to be worse than the last quarter terms of defense cuts.
And that affect on the GDP right.
Right so we're gonna see you know continue draw down because of the withdrawal from Afghanistan.
I don't top of that DOD has come out -- guidance recently that said hey do we need to get ready for sequestration and it looks like this is really gonna happen.
So they've already ordered all the services to start slowing down spending they've told them you know.
Put off orders for things like furniture -- nonessential travel.
You know the start cutting back -- there they -- already planning to let go temporary employees so we're gonna see another hit in this sort fasten your seatbelts we're in for bumpy ride Todd Harrison good to see again thank you very much please come back.
List could be that.
