Defense Industry Aims a Weapon of Mass Job Destruction at Washington
When 14-year-old San Diego native Snigdha Nandipati won the Scripps National Spelling Bee last month, it was a French-derived word meaning ambush or trap -- guetapens -- that won her the prize. But it's another obscure word that may symbolize the budgetary ambush that could swing the 2012 election: sequestration.
Snigdha could probably spell that one without breaking a sweat, but for those of us unfamiliar with the term, here's the new, revised, 2012 definition of sequestration: the deal that Congress made with itself when it failed to agree on spending cuts earlier this year. Rather than make targeted incisions in the national budget with a scalpel, Congress opted to swing a meat cleaver, and cut both defense and entitlement spending across the board.
Needless to say, America's defense contracting firms were not thrilled with the news. And now, they've decided to do something about it.
Fix the Budget ... or Else
Earlier this month, news began filtering out of the Beltway about a doomsday plan that the contractors were mulling. Unless Congress sat down and agreed on a rational budget plan for 2013, the contractors would proceed under the assumption that sequestration would happen, and defense spending would be cut by some $500 billion over the next decade.
"Fine," said the contractors. (Paraphrasing, of course.) "You don't have to buy our tanks, battleships and warplanes if you don't want to. But if you're not buying them, and we're not building them, then this means we've got a whole lot more workers on the payroll here than we need. And so we're going to start laying them off... in September."
As in, just a few weeks before voters head to the polls in November to re-elect their members of Congress -- or not.
30 Threats Hath September
There's no great mystery behind the timing. As Lockheed Martin (LMT) Chairman Robert Stevens bluntly explained: "It is quite possible that we will need to notify employees in the September and October time frame that they may or may not have a job in January, depending upon whether sequestration does or doesn't take effect." So the threat here is clear: Either Congress must find something else to cut, or right before Election Day, newspaper headlines are going to be filled with news of massive layoff announcements out of Lockheed, General Dynamics (GD), Boeing (BA), Raytheon (RTN), and Northrop Grumman (NOC).
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It's hard to overstate how big an effect this could have on employment numbers -- and the election. Combined, these five big defense contractors employ some 527,000 people. With control over so many jobs, it wouldn't take much -- just a layoff of about 14% of the workforce -- to completely obliterate all 69,000 of the jobs America gained in May 2012. Indeed, the situation's even worse than that. As The Wall Street Journal recently pointed out, the five big defense companies are just the tip of the defense industry iceberg. Widen the lens to include the smaller defense shops and suppliers who feed into the industry, and "defense manufacturers and their suppliers employ around 1 million workers combined."
If September's or October's job figures look as bad as what we saw in May, then the defense contractors have the power to single-handedly transform anemic employment growthin America into full-fledged employment decline... at the precise moment when Americans are deciding whom they'll pick for president.
What? Obama? How'd He Get Into This Story?
Not by accident, rest assured. You see, here's the real point of the story: Lockheed, et al may be training their guns at Congress with this threat. Their sole intention in making it may be -- as they claim -- to push Congress to "do something" to fix the budget mess. But members of Congress aren't the only folks going up for re-election in November.
This may come as a surprise to you -- we certainly haven't heard much about it so far this year -- but President Barack Obama is going to be on the ballot, too. So there's a distinct possibility that in the process of trying to embarrass Congress into doing its job, the defense companies may accidentally swing the tide of the election against the incumbent president, and in favor of his rival.
%Gallery-145137%Moral of the story: Unless the president wants to get caught in a "guetapens" not of his own making, he'd better convince Congress to pass a real budget -- and to borrow another phrase from the French, he'd better make it happen tout de suite.
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Motley Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of General Dynamics, Lockheed Martin, Northrop Grumman, and Raytheon.
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