Congress’ $85 billion, across-the-board budget cuts may not have brought the economy to a halt, as many once feared. But they are having a negative effect on jobs in the private sector, according to an analysis of the industries whose head count is most dependent on federal funds.
It is no surprise that some of the companies that are hurting are closely associated with military spending, which was specifically targeted to absorb about half of the cuts from the so-called sequester that began March 1. But many of the businesses experiencing the most pain are those that provide a wide range of services, like plumbing and maintenance.
“We’re kind of invisible,” said Robert M. Sacco, general manager of Aleut Facilities Support Services, based in Colorado Springs, Colo., “until your toilet overflows.”
Contractors say they are trying to make do by picking up other projects, but private-sector and state and local government demand has also been weak or shrinking in recent years. Many in the facilities support field – a business category that includes janitorial, maintenance, trash disposal, guard and security, mail routing, reception and laundry services – say they are frustrated by the lack of public awareness about how defense budget cuts affect workers who are not performing stereotypical military functions.
“They just kind of left us hanging,” said James M. Galligan, chief executive and founder of Strategic Consulting Alliances, a small business in Maryland that employs veterans to do things like clean bathrooms and repair roofs on government properties. “In midstream the government just sort of cut its funding in half, but I, of course, still have to pay for my workers’ health care and taxes and everything else.”
As a result, he resorted to layoffs earlier this year that brought his total payroll down to 50 from about 80.
Galligan’s and Sacco’s companies both provide facilities support services; about 43 percent of the sector’s jobs are directly or indirectly paid for by military and other national security operations.
That makes it one of top five sectors that are most reliant on military spending to pay employees. The others in the top five are ship and boat building; aerospace product and parts manufacturing; scientific research and development services; and navigational, measuring, electromedical and control instruments manufacturing, based on calculations by The New York Times using Labor Department methodology. (The calculations involve looking at which industries receive government allocations, and then determine where hiring occurs when production rises or falls in one of those industries. For example, if the Pentagon spends money on fighter planes, that affects employment in the aerospace industry as well as upstream companies like metal manufacturers.)
“There is a huge amount of public sector employment today that is actually in the private sector,” said Justin Wolfers, an economics and public policy professor at the University of Michigan. “Who is a public sector worker used to be a simple thing and now it’s not.”
Across the five industries that are most sensitive to changes in military spending, employment fell at an annual rate of 2.5 percent in March and stayed flat in April, the latest month for which seasonally adjusted data are available. In all other sectors, by contrast, employment grew at annualized rates of about 1.6 percent in March and 1.7 percent in April.
Before the start of the sequester on March 1, employment at private companies heavily dependent on military spending had been more closely tracking employment in the rest of the economy, though the numbers were somewhat uneven. Military payrolls have been declining almost every month since November 2011 as the United States withdrew forces from Iraq and, more recently, Afghanistan.
These are just the sectors that are most directly hit by Pentagon cutbacks; economists fear that the sequester will ripple through the rest of the economy in more subtle ways, as downsized or furloughed government workers and contractors spend less money at their local businesses. The federal government has shed 45,000 jobs since the sequester began, and federal workers who were working part time but wanted full-time work numbered 55,000 in May, up from 38,000 a year earlier.
Government cutbacks, not just the sequester and other federal budget cuts but also several years of state and local government layoffs, appear to be an important factor in holding back the economic expansion.
“The great puzzle in this recovery is why it’s not quicker, particularly relative to other recoveries,” Wolfers said. “The sequester is one of the many insults that been hurled at the recovery so far.”
Even companies that have not been affected so far are concerned about the pipeline for future government work.
“Fiscal year 2014 is going to be a bad year,” said Mario Burgos, president of the Burgos Group, a small business in Albuquerque, N.M., that provides a variety of technical, administrative and management services to federal clients, including the Navy, the Air Force and the Bureau of Land Management. “The largest amount of contract awards comes in this last fiscal quarter, which ends in September. Well, that’s also the time that the government employees who make those award decisions, who get those contracts out, are all being furloughed.”
Burgos said his company had been enjoying a good year so far, mostly by casting its net more broadly and bidding on contracts at agencies the company had not previously worked for. Nonetheless, he has resisted expanding because of uncertainty over the next federal fiscal year, which begins on Oct. 1, and whether existing contracts, typically awarded on a five- or 10-year basis, might be canceled early.
“It really makes us hesitant to invest in infrastructure, like additional people or additional tools, since we don’t know what could be taken away,” he said. “Usually one of the nice things about federal contracting is that you can plan on a longer time frame, as opposed to with business-to-business projects where somebody new gets hired and then they change their mind about the project. But now even in government work we don’t know what’s going to happen month to month.”