Defense Sector

The defense sector, as measured by Pentagon spending and military and defense industry employment, has been shrinking, both in absolute terms and relative to the U.S. economy, since the mid-1980s. Declines in Defense Department (DOD) spending and decreases in defense-related employment has occurred during a period of strong increase in the gross domestic product and in nondefense employment. The defense reinvestment and conversion initiative was established in 1993 to help ease the displacement caused by defense downsizing. Not all programs were tied directly to DOD cuts, however. Some individual programs in the initiative also have purposes and will likely continue after the initiative ends in fiscal year 1997.

GAO found that: (1) the defense sector has been shrinking, both in absolute terms and relative to the U.S. economy, since the mid-1980s; (2) declines in DOD spending and concomitant decreases in defense-related employment have occurred during a period of strong increase in the gross domestic product and in nondefense employment; (3) the defense reinvestment and conversion initiative was established in 1993, in part, to help ease the displacement caused by the defense sector downsizing, but not all programs were tied directly to DOD cuts and some will likely continue after the initiative ends in fiscal year (FY) 1997; (4) overall defense spending and employment peaked in the mid- to late 1980s and have steadily declined since then, and defense-related employment has followed the same pattern; (5) the level of defense industry activity and employment will depend in part on the amount of future research and development and procurement spending; (6) DOD expects the decline in procurement spending to bottom out in 1996 and projects a 47-percent increase in procurement budget authority, adjusted for inflation, from the 1996 level by 2001; (7) the 5-year defense reinvestment and conversion initiative combines some new and some existing programs, with some directly tied to declines in defense and military spending and others to assist companies to develop dual-use technologies or support the defense industrial base; (8) the estimated cost of this initiative has risen to $24.1 billion from the original estimate of $21.6 billion; (9) existing programs were categorized as being part of the initiative, which accounts for at least part of the spending increase from the initial proposal; and (10) the executive branch's FY 1996 budget proposes $178 million less for FY 1997 than the administration originally planned. GAO also found that: (1) indicators of the shrinking defense sector include: (a) defense employment relative to total employment; and (b) defense spending as a percentage of the gross domestic product; (2) defense-related employment as a percentage of total U.S. employment reached a peak of 6.2 percent in 1987 and has declined to 3.8 percent in 1995; (3) similarly, defense spending as a percentage of gross domestic product peaked at 6.5 percent in the late 1980s and has since declined to 4.1 percent; (4) although defense spending and the defense industry have declined, the U.S. economy as a whole has expanded; (5) since the late 1980s, total nondefense-related employment has grown by 12 percent and the nation's gross domestic product has increased by 18 percent; and (6) many analysts forecast continuing growth over the near term.