Defense industry is key to the economy – it affects manufacturing, jobs, and supply chains.

The U.S. Aerospace & Defense industry is a global leader in innovation and significant component of the nation’s advanced manufacturing base of industries. IHS was commissioned to quantify the economic contributions of the U.S. Aerospace and Defense (A&D) industry to the U.S. economy and provide enhanced understanding of the industry’s extensive supply chain, by economic sector at the national and state level. The key findings of this study measure the economic contribution the A&D industry makes in terms of employment, value added (contribution to GDP), sales (output), labor income and taxes within the broader economy. In 2015, the U.S. economy posted $30.7 trillion in total sales activity; of that total, IHS estimates that $786 billion was supported by the A&D industry’s economic activity. This occurred through approximately $349 billion in direct sales activity, which initiated additional activity as dollars flowed through the A&D supply chain. This “multiplier effect” drove an additional $256 billion in indirect sales. Further, companies and their suppliers hired and paid employees, who, in turn, consumed goods and services in the economy. These induced effects amounted to $181 billion in 2015. The graphic below depicts this flow of economic impacts. The sales activity generated by the A&D industry triggers additional economic benefits – workers must be hired and retained in order to deliver goods and services; companies reap additional profits and make larger contributions to GDP; and both companies and their employees must pay taxes. In this realm, IHS estimates that in 2015 the A&D industry fueled the following contributions to the U.S. economy:  The U.S. A&D industry directly and indirectly employed 1.7 million workers engaged in the design and production of end-user goods and services and within the industry’s supply chain. About two-thirds of those workers were split about evenly between the civilian aviation and the defense/national security sector.  More specifically, within the A&D industry about 531,030 workers were employed in the design, manufacture and supply chain of civil and general aviation aircraft, helicopters and space systems. Since 2013, employment in the sector has decreased by a compound annual growth rate (CAGR) of -0.38%, or by a net of 6,100 jobs.  Another 510,570 jobs were focused on the design, manufacture and supply chain of end-use military aircraft, ground and sea systems, armaments and space systems. Since 2013, the segment’s employment base experienced overall stability, decreasing by a CAGR of -0.03%, or a net loss of less than 1,000 jobs.  Jobs supported by the A&D industry represent approximately two percent of the nation’s total employment base.  Direct A&D industry jobs combined with those supported in the industry’s supply chain represented 13 percent of the nation’s manufacturing employment base.  For every million dollars in direct sales activity, eight employees are supported throughout the supply chain and across economic sectors.  The A&D industry generated $300 billion in economic value, which represented 1.8 percent of total nominal GDP in the U.S.  The output supported by the A&D industry directly and through the supply chain represented about 10 percent of manufacturing output in the U.S.  Labor income supported by the A&D industry represented about 2.3 percent of the nation’s total labor income.  The average labor income per job within the A&D industry (both producers of end-use goods and services as well as the supply chain) amounted to just over $93,000 – or approximately 44 percent above the national average – reflecting the highly skilled nature of the workforce.  The contribution to tax receipts from the A&D industry was $63 billion, or about 1.7 percent of the total tax revenues received by the federal and state and local governments. The U.S. A&D industry is a broad complex of firms performing a variety of functions including service delivery in support of operations and the manufacturing of goods and of materials, components, systems and platforms for civil aviation, space, and national security applications. For the purposes of this analysis, the A&D industry is defined by a set of associated sectors categorized under the North American Industry Classification System (NAICS) that include firms that produce goods and services for end use by A&D industry customers, while other sub-sectors are predominately comprised of suppliers that support production. These two primary groupings are described as having a ‘direct’ or ‘indirect’ impact on the economy; firms that engage in producing goods and services for end use are considered to have a ‘direct’ impact on the economy (for a list of these sectors, see Table 1 in the Approach and Methodology section of this report), while firms in the supply chain are considered to have an ‘indirect’ impact on the economy (for a list of these sectors, see Table 2 in the Approach and Methodology section of this report). Further, firms supplying to ‘direct’ manufacturers are classified as ‘tier I’ and firms supplying to the ‘tier I’ suppliers are classified as ‘tier II’. In addition to this tiered classification, there is a portion of the supplier base that does not fall within the A&D industry. As a point of reference, firms that supply management consulting, transportation services or office equipment to the tier I and II A&D-supplier community do not constitute the A&D supplier base, but are included as part of the industry’s indirect and induced impact (for a list of these sectors, see Table 3 in the Approach and Methodology section of this report). The A&D industry is a vital component of the US economy, not solely for the role the industry plays in national security, transportation and technological innovation, but also because its influence spans many sectors and every state throughout the country. From commercial airliners to military vehicle manufacturing, the A&D industry calls upon businesses across the nation to supply goods and services for end-use production. From these transactions, the A&D industry supported an average of nearly 2.8 million jobs between 2013 and 2015, representing approximately two percent of total U.S. employment and produced an average of $301 billion in total economic value, or 1.8 percent of nominal U.S. GDP. For much of the previous five decades, the U.S. manufacturing base has experienced a continuous and sometimes precipitous decline as global market forces drove firms to close, downsize, or relocate abroad. The manufacturing segments associated with A&D have certainly not been immune to this trend; however, over the past several years, strong growth in international markets has driven resurgence in the sector, which has helped accelerate the country’s recent economic recovery. Over the past five years, the U.S. manufacturing industry has enjoyed an average annual growth rate in payrolls of 1.5 percent. Meanwhile, the transportation manufacturing sector, which includes the manufacture of ships, aircraft, and locomotives, posted an average annual growth rate in payrolls of 3.6 percent – outpacing the 1.7 percent growth rate of total non-farm payrolls over that same period. The economic impact of the A&D industry goes well beyond the companies directly involved in the production of finished goods. The lengthy process of bringing these products to market supports a variety of services that are critical to the success of the industry. The A&D value chain extends throughout the US – from engineering and research and development efforts to the highly capital intensive sectors that provide raw and intermediate materials and components. The result is an extended network of companies that forge and fabricate metal, design and build complex systems, and assemble the finished goods that are ultimately required by the industry. Furthermore, the economic activity associated with end use and supply chain ripple out to a broader set of economic sectors as wages earned are spent across the economy, benefitting sectors ranging from retail trade to the leisure and hospitality sector. The A&D industry drives economic growth at the local level as well, as many states across the United States depend heavily on the jobs and incomes created by the aerospace and defense industry. From the aerospace manufacturers and suppliers in Washington and Southern California to the defense contractors in Texas and Washington DC/Northern Virginia area, the A&D industry serves as an economic keystone that not only creates jobs and boosts wages, but also provides a reliable stream of tax revenue for state and local governments.