“Military Cuts Loom as Late Campaign Issue”
July 8, 2012, By Patrick O’Connor
The Wall Street Journal
For all the focus on the unemployment rate heading into the November elections, the layoffs that could most complicate President Barack Obama's re-election prospects wouldn't take effect until early next year.
Unless Congress and the White House reach a compromise by year-end, the Pentagon would have to slash roughly $50 billion more from the current fiscal-year budget in January. That prospect of wide layoffs could undercut Mr. Obama in battleground states heavily dependent on military spending, particularly Virginia.
Federal law requires companies to warn their employees of potential layoffs 60 days before they take effect, meaning thousands of workers could receive the warning notices on the Friday before the election.
"When you start getting those pink slips coming in October, it would be my feeling that that will have an impact in the voting booth," said Rep. Randy Forbes, a Virginia Republican whose district would be hurt by another round of military cuts. "I cannot think of a more potent issue."
Some large contractors, such as Lockheed Martin Corp., LMT +0.16% have broadcast their concerns, warning employees and the public about what to expect next year. Recent government statistics, from the Congressional Budget Office and others, suggest the defense industry already is in the midst of a slowdown.
A widely circulated study for the aerospace industry predicted more than 350,000 U.S. workers would lose their jobs as a direct result of military cuts. Once the cuts are spread across the entire economy, more than one million people could be out of work, according to the study.
"Everybody feels it when you take this money out of the economy," said Stephen Fuller, a George Mason University professor who wrote the study and plans to release an updated version soon. He predicts the cuts will cause a recession in 2013. "When you stop paying these salaries, those guys stop buying beer and hot dogs," he said.
Few states rely as heavily on military spending as Virginia, home to the Pentagon and a tangle of bases and defense contractors. Mr. Fuller predicts the state would shed more than 120,000 jobs if all the cuts were enacted, ranking it second behind California.
"It's going to have a significant impact," said Rep. Rob Wittman, a Virginia Republican and member of the House Armed Services Committee. "The anxiety is building on a daily basis."
Just the prospect of additional cuts has defense contractors queasy. John McQuiddy, who runs a company that makes motion sensors used in war zones and along the U.S. border with Mexico, worries he might be forced to close the 27-year-old firm. He said revenue is half of what it was in 2009, the result of Congress's passing stopgap measures to fund the government for the past three years.
"We wouldn't even think about hiring anybody," he said. "Our thought right now is to just hang on."
Those fears spread beyond the defense industry. Joe Falk, a car dealer in Chesapeake, Va., said he has already seen "a slowdown in what people will spend on repairs and buying a new vehicle." He worries about paring his staff of roughly 70 employees.
"Almost everyone we sell to has a tie to the military," Mr. Falk said. "The trickle of that money into the rest of the economy is huge."