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Government Spending Cuts: Industries at Risk
in the short term, they will negatively
impact many US industries that rely on
the federal government as a major
customer or as a financial supporter.
IBISWorld examines the effects that a
reduction in spending programs will
have on the industries most reliant on
the federal government.
Impact of spending cuts on industries
IBISWorld identified 94 industries that
would be directly impacted if federal
government spending is cut back.
Together, these industries generate an
excess of $5.9 trillion in revenue and
employ more than 36 million people.
IBISWorld profiles five of these
industries based on their size and the
importance of government spending on
their operations.
Public Schools (IBISWorld report
61111a) are expected to generate $685.3
billion in revenue in 2013 and employ
6.5 million individuals. In 2009,
Congress passed the American Recovery
and Reinvestment Act (ARRA) in
response to the recession. The ARRA
allocated $100.0 billion to education,
which went toward teacher salaries,
school repairs, Pell Grants and lowincome
public school children, among
other areas. Any spending cuts in
education would severely reduce this
industry’s revenue. Cutbacks could
result in layoffs, loss of school
transportation and even school closures.
The Public Schools industry is highly
reliant on federal government funds
and is at high risk for cuts when
spending comes into question.
The $156.3 billion Aircraft, Engine
and Parts Manufacturing industry
(33641a) generates about 20.0% of its
revenue through government military
contracts. While defense spending
jumped during the past five years due to
the wars in the Middle East, it has
already fallen in 2013. In fact, the
Pentagon cut defense spending 22.2%
from October to December 2012, causing
a 0.1% contraction in US GDP. The
industry employs nearly 362,000 people
and many of those jobs will be at risk if
defense spending cuts are implemented.
Bolstered by the ARRA, the Road and
Highway Construction industry (23411a)
weathered the recession relatively well.
The federal government dedicated
$105.3 billion to infrastructure projects,
aiding in the resuscitation of stalled
highway projects. The $49.7 billion
industry is also set to benefit from
federal funding under the Surface
Transportation Extension Act of 2012
and the Moving Ahead for Progress in
the 21st Century Act. Both of these laws
will allot money to highway construction
during the next five years. Public funds
account for 78.5% of industry revenue,
so any decline in government spending
will hurt the industry and its
185,000 employees.
Companies within the Remediation
and Environmental Cleanup Services
industry (56291) provide remediation
services to mining sites, soil,
groundwater and contaminated
buildings. The federal government
contributes a third of the industry’s
$20.8 billion revenue. Under the ARRA,
the industry received significant funding
from the federal government to continue
its operations. Moreover, funds from the
Federal Emergency Management Agency
(FEMA) and the Environmental
Protection Agency (EPA) are vital to the
industry’s existence. A reduction in
government spending – either via
FEMA, the EPA or the ARRA – could
stifle industry performance and put
many of the 90,300 industry jobs at risk
of being eliminated.
The Mental Health and Substance
Abuse Clinics industry (62142) also relies
heavily on government contributions,
primarily in the form of Medicare and
Medicaid reimbursements. Medicare and
Medicaid patients account for about a