Tag: defense cuts

Damage from Sequester Very Real and Approaching Fast

Today the Task Force on American Innovation, chaired by NAM and Texas Instruments, sent a letter to the President and Congressional leaders calling for a halt to the sequester. Signed by the heads of leading business and technology associations, the letter represents thousands of businesses, educational institutions and other interested parties. The sequester is set to make across the board budget cuts to discretionary spending, with much of those cuts to the defense sector.

The NAM has led the opposition to the sequester basically since its inception. Manufacturers released a study detailing the serious damage that these cuts will have on our economy – we took that message around the country and have used every tool at our disposal to make sure that policymakers are well aware of the damage that will be inflicted.

Unfortunately, in the 18 months since the Budget Control Act was passed, Washington hasn’t found a way to avoid the sequester and the numbers haven’t changed. If the planned defense cuts go into effect we’ll see a body blow to our efforts at economic recovery.

  • Over 1 million jobs lost
  • A loss of 1% of GDP
  • An 0.7& increase in the unemployment rate

Additionally, we would see a drain on innovation and scientific advancement that manufacturers rely on to drive their business in such a competitive global economy.  Continued economic growth is the true solution to our fiscal issues and if Washington allows the sequester to become a reality, we will have eliminated one of the most critical elements for success.

The cuts undermine our economic growth in a shortsighted fashion that will hurt America for generations to come. The businesses and other organizations that signed the letter to the President and Congressional leaders are not crying wolf – it’s a very real threat to our ability to grow and lead the world economy and it’s entirely self-inflicted. It’s beyond time to solve this problem and get focused on growing the economy.

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When it Comes to the Defense Sequester, the DoD Secretary Cuts to the Quick

For more than a year, manufacturers have been telling policy makers that the pending sequester, now set for March 1st, will impair our national security and cripple a vital part of the manufacturing sector. This morning at Georgetown University, Defense Secretary Leon Panetta delivered the same message, and laid out the true national security ramifications.

On the need to maintain the defense industrial base, he told the audience, “The last damn thing we need, if we face a crisis, is to have to contract out that responsibility to another country.” As the deadline fasts approaches for the across-the-board cuts to kick in, we strongly urge Congress and the Administration to work together to replace the sequester with less damaging cuts in federal spending and not job-killing tax increases.

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An Uncertain Future for Manufacturers

For many small manufacturers in the defense industry, innovation and investment is the lifeblood of their business. They are driven by the ability to stay a step ahead of their competitors through the development of new and effective products. One such company is Nanocerox, an Ann Arbor, MI. based manufacturer of advanced materials for laser systems, missile optics and radiation detection. A younger company, founded in 1996 by Dr. Richard Laine, Nanocerox sprung from licensed technology from University of Michigan chemistry laboratories. Like so many companies, Nanocerox was born with an idea and has since flourished due to their innovative products.

Unfortunately, Nanocerox is under serious duress as a result of the impending fiscal cliff. They are part of a group of defense manufacturers set to be hit with a ‘double whammy.’ In addition to the massive tax increases that are set to take effect on January 1st, 2013, Nanocerox is facing significant cutbacks in business due to the required defense cuts, also set to take place at the beginning of next year.

The NAM released a study detailing how manufacturers are already feeling the squeeze and Nanocerox is a prime example of this. They have already undergone a reduction of 30% of their workforce, redone their benefits, limited executive pay and yet they are still facing serious hardship.

Nanocerox’s CEO Mike Kelly said, “We don’t have the capacity to cut any more – we’re down to the bone here. In preparation for the fiscal cliff we took several serious steps to reduce our costs – and it still seems like it might not be enough if we go over this cliff. Based on what I’ve seen out of Washington, I don’t have a lot of faith that they can come to an agreement that will offer any sort of long-term solution to provide certainty to businesses like Nanocerox.”

Certainty is key to small and medium-sized manufacturers. In the absence of certainty, manufacturers are forced to stand on the sidelines, unable to make the needed investments and hiring decisions to keep themselves growing.

Nanocerox has firsthand experience with the impact of uncertainty. In efforts to shore up the business, Mr. Kelly has attempted to lead significant diversification efforts for their products and expand into the private sector for sales. But with the defense cuts facing the United States, it is incredibly difficult to acquire the capital investment needed to make such an important expansion.

Kelly says that, “it’s a tough situation. We want to expand beyond the defense sector to protect ourselves and our employees against the impending cuts – but it’s these very cuts that are preventing us from achieving that. I need an answer from Washington, and I need it soon – otherwise I have no idea what the future will hold for Nanocerox.”

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Manufacturers: Derailing the Sequester Only Solves Part of the Problem

President Obama’s assertion last night that the sequester “will not happen,” was encouraging news to manufacturers who are extremely concerned about the impact on jobs and the economy of the $1.2 trillion in federal spending set to begin January 1st. Although the administration walked back the comments a bit following the debate, it is still an important commitment that we hope the President will uphold.

Earlier this year, we released a report showing that the defense cuts will reduce U.S. employment by more than 1 million jobs in 2014 alone. Similarly, the Information Technology and Innovation Foundation (ITIF), a non-partisan think tank, in September released a study called Eroding Our Foundation: Sequestration, R&D, Innovation and U.S. Economic Growth concluded that close to 200,000 jobs per year could be in jeopardy if across the board cuts to federal R&D investment are implemented. But avoiding the sequester addresses only part of the problem. Pending tax increases for a wide range of individual taxpayers and small businesses along with the spending cuts under sequestration will hit the U.S. economy with a $500 billion fiscal shock on January 1st, a shock that likely will send our already weakened economy into a tailspin.

So, while manufacturers appreciate the President’s commitment to avoiding the sequester, we also believe it is critically important to maintain the status quo on current tax policy for all Americans. Almost 70 percent of all manufacturers (about 200,000 nationwide) pay income taxes at the individual rate. The average taxable income for these small manufacturers is $570,000 – so unless Congress extends current tax rates, these employers will be subject to new tax rates of almost 40 percent and subject to new restrictions on itemized deductions and exemptions. Not exactly good news for job creation and investment.

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Real Manufacturers Warn of Defense Cuts Economic Damage

The drum beat of the massive damage that the U.S. will see should the defense cuts go into effect is picking up. This weekend the Las Vegas Review-Journal ran an editorial by Click Bond Inc. executive Karl Hutter.

The NAM released a report that paints a stark picture of job loss and economic loss – to the tune of over a million jobs lost nationwide by 2014. But you don’t have to take the word of an economic report – real manufacturers are telling the exact same story.

Mr. Hutter writes about who will bear the brunt of these proposed cuts. “In the aerospace sector, most of the pain from these cuts will not be felt by large corporations, but by the small and midsize businesses that form the extended supply chain. About two-thirds of an aircraft’s value is contributed by smaller suppliers, and three-quarters of all aerospace and defense-related manufacturing jobs are at these firms. So cuts to large programs and their big prime contractors will immediately flow down to where most of the work is done. My company, Click Bond Inc. in Carson City, is one of these firms.”

In a recent survey of manufacturers and small businesses, over two-thirds have cited uncertainty in the economic and political arena as their major road block to job creation and investment. Mr. Hutter’s comments put a face to those significant concerns.

“Sequestration stands to negatively impact our planned growth through investments in equipment and construction, in research and technology and, most importantly, in hiring and training people. While we wait for Congress to act, the mere uncertainty surrounding sequestration makes running a business difficult. It’s hard to invest in new products or hire new workers with the sequestration buzz saw hanging over aerospace and defense programs. It’s risky investing in expensive tooling or materials for work on contracts that may be sequestered, but it’s equally dangerous putting off work in the face of tight customer deadlines and long material lead times.

We must sign contracts now with our own suppliers on work for 2013, but it’s impossible to know which projects will survive sequestration’s scythe. Such judgments must be made by every firm up and down the entire supply chain, exponentially magnifying the damage that is already under way.”

This is why the President and the Congress need to act now, on behalf of companies like Click Bond, to halt these cuts, restore certainty and save the million-plus jobs that are at risk.

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OMB Urges Avoiding Notices, Not Defense Layoffs

We have learned today that the Office of Management and Budget (OMB) is urging defense and other government contractors not to issue layoff notices as sequestration approaches. The OMB has even offered to cover any potential legal costs that could come up as a result. The guidance offered by OMB appears to be more about politics than about finding a solution that will offer certainty to manufacturers across the United States.

The NAM has been saying for months that the defense cuts in sequestration amount to surgery with a chainsaw and they will cost the United States more than 1 million jobs by 2014. The cuts threaten both our economic and our national security – an unacceptable reality in such unstable times. As such, we have called for policymakers to take the necessary steps to put a stop to these damaging cuts and find a way to address our national debt by reforming the real drivers of this crisis, entitlement programs.

With so much at stake, and with 67% of manufacturers saying there is too much uncertainty in the market today to expand, grow or hire new workers, it’s a fair to wonder if the time spent urging defense manufacturers not to issue layoff notices would have been better spent trying to find a solution to the problem of sequestration.

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More Experts Weigh in on Defense Industry Job Losses Resulting from Sequestration

The NAM continues to warn lawmakers about the impact sequestration will have on manufacturing jobs based on our recently released study. On Friday the Center for Strategic and Budgetary Assessments (CSBA)  released a detailed background report which provides a “comprehensive account-by-account and outlays analysis of its potential impact on the DoD budget” according to CSBA’s website.

Both reports make the same conclusion: Sequestration will cost America jobs in the defense sector.

Todd Harrison, author of CSBA’s backgrounder cites that DoD contractors would face reductions in contract awards, extensions, and options. DoD may also be forced to renegotiate contracts that would result in increased costs to the government. DoD’s civilian employees would be hit especially hard. In order to meet the budget numbers, there would have to be a decrease in 108,000 of these jobs. Mr. Harrison also provided a slide presentation to illustrate these important points.

We encourage you to tell your Members of Congress about the job-killing defense cuts that will soon face manufacturers. Please visit the NAM’s Manufacturing Works website if you would like to take action and contact them directly. 

Brian Raymond is director of technlogy and domestic economic policy, National Association of Manufacturers.

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NAM Member Calls on House Armed Services Committee to Halt Defense Cuts

Della Williams testifies before the House Armed Services Committee in a hearing to examine the implications of sequestration and its potential effects on the national defense industry.

Today the House Armed Services held a full committee hearing entitled Sequestration Implementation Options and the Effects on National Defense: Industry Perspectives.  The hearing focused on the looming defense cuts coming in 2013 that threatens both our national and economic security. The NAM recently released a study that shows the impending cuts will cost over 1 million jobs across the country.

Della Williams, President & Chief Executive Officer of Williams-Pyro and NAM Board Member testified before the committee, providing an in depth look at the impact of pending defense cuts on small business’ and putting a face to the devastating ripple effect the cuts will have on the supply chain.

Lockheed Martin Chairman and CEO Robert Stevens, a NAM member, also testified before the committee.

In her testimony, Mrs. Williams made it clear that the negative effects will not occur in a vacuum – but rather across our entire economy. “So these cuts will not just impact a few large companies. These cuts will flow down the supply chain and through the broader economy. They will impact companies, like mine and threaten the jobs of thousands of skilled workers. If small business—and I would submit even further, manufacturing— is an engine for economic growth, why are we making decisions that will inevitably stall that engine?”

It’s a question that deserves an answer.

Mrs. Williams’ story is a compelling one. She and her husband founded Williams-Pyro nearly 50 years ago. Today the company employs 89 people in the Dallas-Fort Worth area and stands as a testament to the possibility of the American Dream. Earlier this morning, Mrs. Williams appeared on Fox News’ “America’s Newsroom” to share her story and discuss the challenges that her company, along with all small to medium sized defense manufacturers, are dealing with in the face of sequestration.

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Looming Defense Cuts Threaten Thousands of North Carolina Jobs

The looming defense cuts threaten not just our national security, but our economic security. The study recently released by the NAM predicts that without Congressional action, these cuts will cost over a million American jobs, creating a devastating ripple effect throughout the manufacturing supply chain.  These looming cuts, as part of the impending fiscal cliff, are part of the ongoing negative environment for business and it’s time for Washington to start working for manufacturers.

Today Jay Timmons, NAM’s President and CEO, joined with the North Carolina Chamber and the Lord Corporation to bring the that message to Raleigh, North Carolina. One of the ten states that will be hit the hardest, North Carolina stands to lose 34,200 jobs by 2014. Lew Ebert, the President and CEO of the North Carolina Chamber of Commerce, made it clear that in a state struggling with one of the highest unemployment rates in the nation, this is a burden that North Carolinians simply can’t bear.

(Left to right) Lew Ebert of the North Carolina Chamber of Commerce, Will Austin of the Lord Corporation, and Jay Timmons talk about the looming defense cuts at the headquarters of the North Carolina Chamber.

Will Austin, Director of Government Affairs for the Lord Corporation, spoke frankly about the uncertainty that his company is facing and the strain that it has placed on their ability to plan for the future. Unless Congress acts, companies like Lord will have some tough decisions to make.

Mr. Timmons emphasized the NAM’s commitment to preventing the defense cuts and protecting the million plus jobs that are at risk. He noted that every day, manufacturers in the U.S. already face a 20 percent cost disadvantage – Washington doesn’t need to make things even more difficult by creating such a negative, and perhaps irrevocable, blow to our economy.

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Wall Street Journal Shines Spotlight on Defense Cut Job Losses

The Wall Street Journal today chronicles the job losses associated with the looming defense cuts set to take effect due to sequestration next year. Defense manufacturers and those that make up the supply chain of the industry have publicly commented that the significant cuts will force them to lay off thousands of workers due to the billions of dollars in cuts that are required due to the Budget Control Act passed in the Summer of 2011 unless Congress and the Administration act. 

The WSJ notes that, “Defense Secretary Leon Panetta has urged Congress to reverse the cuts, but industry observers say they don’t expect lawmakers to begin serious discussions over how to avoid the defense cuts until after the November elections.”

The specter of these lay-offs come on the heels of an incredibly weak May jobs report and a rise in the unemployment rate.

It is essential that Washington act as soon as possible to avoid these job-killing defense cuts. Employers must begin preparing for the required cuts now and the livelihoods of hundreds of thousands of workers rest in the hands of policymakers in Washington.

The House has taken action in order to protect these critically important jobs while the Senate and White House have yet to address the situation.  Here at the NAM, we are committed to protecting these jobs and will continue to work to ensure that action is taken before it’s too late.

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