Defense spending flies high in the Southeast: Florida Georgia claim the fourth- and fifth-largest allocations for military spending in the nation, and the defense industry is significant in the Southeast as a whole. Increased spending for contracts, personnel and military base operation will sustain some jobs and stimulate the region's technology-based enterprises, at least in the near term - Cover Story - military contractors add jobs

EconSouth, Summer, 2003

Across the Southeast, military contractors are producing everything from virtual reality training modules to boots and breakfast cereal as part of the nation's $243.7 billion 2002 defense spending bill.

Pockets of new jobs and higher salaries for the region's military personnel are good news for the Southeast, especially in states that have experienced high employment losses during the past few years. However, this timely stimulus will not be sufficient by itself to spark an overall economic rebound in the region.

Businesses in Mississippi and Louisiana are on tap to add crucial new jobs as a result of $1.8 billion worth of ship contracts won by Northrop Grumman. The boost to employment will be significant compensation for shrinking work opportunities that have plagued both states.

Defense spending on aerospace production and research, concentrated in Georgia, Florida and Alabama, accounts for $8.7 billion of the $20 billion in military contracts awarded to the region as a whole. Rather than creating new jobs, however, these contracts will mostly serve to retain jobs.

Technology and communications expenditures could breathe new life into the struggling high-tech industry, which is especially important in Florida. Information technology, biomedical technology, modeling, simulation and training industries, and plastics industries have "attained critical mass" there, according to Business Florida, along with the aviation, aeronautics and defense industries. Aviation and aerospace industries alone generate more than $15 billion in annual sales in Florida. According to one research study cited in the Real Estate Journal (published by the Wall Street Journal), technology-related jobs account for $16.8 billion in wages annually, far outstripping the impact of tourism, which provides $9.6 billion each year.

In Tennessee, a state hard hit by the waning domestic apparel industry, an infusion of more than $1 billion in defense contracts to 2,000 companies will be a significant help. Apparel employment there has halved since 2000.

Contractors across the region will benefit from construction stimulus. In 2001 the Southeast received $1.7 billion of the $10.5 billion allocated for military construction in the nation as a whole. Analysts expect spending on military construction to increase slightly each year through 2005, helping to offset regional downturns in commercial construction that threaten to continue throughout 2003.

In addition, a 4.4 percent pay increase for armed services personnel will add to discretionary income and boost retail spending.

Defense spending remains important in the Southeast

The Southeast, which claimed about 16 percent of the nation's direct expenditures for defense in 2002, has historically relied on military spending as an economic spur. In 1996 the Southeast was the third-largest regional recipient of defense contracts, behind only the Western and Mid-Atlantic states.

Cuts in defense spending in the late '80s and early '90s compelled manufacturers to turn military capacity toward civilian production. For example, global positioning systems have been widely adapted for civilian use in navigation and agricultural equipment, some shipyards building naval vessels turned to producing pleasure boats, and some airplane manufacturers producing military planes switched to making corporate jets. While the orientation of traditionally defense-oriented industries shifted, the clusters of technological expertise and skilled labor remain intact and have drawn defense contractors back to the region. Georgia in particular has benefited, moving from eighth nationally in the amount of defense contract dollars received in 1996 to fifth in 2001. Florida moved from fifth to fourth in 2001.

Although Louisiana, Mississippi, Alabama and Tennessee receive considerably fewer defense dollars than Florida and Georgia, military spending is nonetheless an important factor in these states' economies.

Aviation struggles despite defense demand

The Lockheed Martin plant in Marietta, Ga., one of the region's largest benefactors of defense spending, landed a $4 billion contract to produce 40 C-130J aircraft for the Air Force and 20 KC-130J aircraft for the Marines. However, the six-year contract will not produce any new jobs at the plant; rather, it will ensure that the plant's 7,000 employees retain their jobs, according to a Lockheed spokesperson.

The story is similar to what's going on elsewhere in the nation. Setbacks from the combined effects of terrorism and SARS as well as curtailed travel during the war with Iraq have cut commercial aviation production dramatically. Companies that would normally expand their facilities and workforce in response to the added demand of defense contracts currently have excess capacity. So instead of adding employees, the defense business is helping to forestall layoffs and shutdowns by contractors.

Boeing's contract to assemble a missile interceptor in Huntsville, Ala., will also help maintain the status quo, providing jobs mostly for its existing employees. The Arrow 2 interceptor, developed jointly by the United States and Israel, will be produced along with the earlier Avenger system. Although Avengers are still being manufactured for export, demand is flagging. Thus, Arrow 2 production will fill the gap. Boeing employs about 2,600 people in the Huntsville area on various NASA and military projects.