Defense spending cuts are starting to take a toll on the economy, further
slowing a sluggish jobs recovery.
The effects were modest in April but will intensify in coming months.
Many defense contractors "are telling us that this recently began to rock the supply chain," says Marion Blakey, CEO of the Aerospace Industries Association (AIA).
Cuts in the federal budget took effect March 1, part of a deficit-reduction package. About half the $44 billion in cuts expected by Sept. 30 will come out of defense spending.
Defense and aerospace contractors announced about 2,000 layoffs in April as a result of the cuts, outplacement firm Challenger Gray & Christmas said Thursday. That's double the number announced in March.
The announced layoffs are just a portion of total defense job cuts of up to 10,000 in April, says economist Mark Zandi of Moody's Analytics. Overall, economists estimate the government today will report 148,000 job gains last month.
Besides layoffs, hundreds of defense contractors are not filling open positions and putting off new hiring, says Loren Thompson, a defense analyst at the Lexington Institute. Defense cuts likely will pare job gains by 25,000 to 30,000 a month this year, says Stephen Fuller, an economist at George Mason University who has done studies for the AIA.
Small to midsize firms are seeing contracts for information technology and other services ended. Others are receiving fewer requests for proposals and orders from large contractors.
Level 3 Communication Systems, which makes technology for drones and satellites, aid in April that it had laid off 190 staffers in Salt Lake City, or about 4.2% of its workforce. National Technical Systems, a provider of testing and engineering services, said this week that it's cutting a few dozen jobs.
Some small firms could shut down while others switch to new sectors, leaving supply shortages when budgets are replenished, Blakey says.
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