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Military Spending and Economic Growth

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WASHINGTON, DC – October 26, 2018

The U.S. economic growth in the past year and a half is largely associated with the state's defense spending, according to a Wall Street Journal analysis of Commerce Department data.

Based on statistics from the U.S. Department of Commerce, WSJ analysts concluded that the economy has grown by 2.9% in annual terms since April 2017, which is higher than in the previous eight years. Public spending on defense contributed to the growth — faster government spending accounted for nearly half of the acceleration.

The U.S. military budget for 2019 has grown significantly, as the Pentagon has insisted on the need for modernization — hence the contracts received by defense companies.

For example, Lockheed Martin Corp., the world’s largest defense contractor, said Tuesday it expects revenue to increase up to 6% in 2019 as it boosts production of missiles and F-35 combat jets. The company reported a $1.47 billion profit for the quarter ending Sept. 30, compared with $963 million a year earlier. Its order backlog rose to $109 billion.

The Boeing Co., the world’s largest aerospace company by sales, raised its revenue and profit outlook for the year, thanks in part to strong demand for defense projects. The company won a trio of Pentagon contracts in recent weeks, after four years of sales declines in its defense unit.

And this is rippling out to smaller businesses — for example, J & R Tools, which supplies equipment to the Navy and Marine Corps. Its representative confirmed that the military budget had improved financial performance.

At the same time, Douglas Holtz-Eakin, a Republican economist and former director of the Congressional Budget Office, cautioned that the return of higher military spending might not last forever.  In his opinion, after September 2019, there may be a situation when Republicans and Democrats do not reach a consensus on defense spending.

Economic growth is an important point of debate in the midterm elections. President Trump and the Republicans say tax cuts and less regulation have accelerated growth. Democrats say faster growth is uneven and unsustainable. The role of government spending has received less attention from either side.

Author: USA Really