We believe defense spending, after a rebound in the first quarter of 2013 on the heels of the big drop in the fourth quarter of 2012, is likely to be flat in 2013.
If Congress can agree to substantial cuts
in defense spending as part of an overall budget deal (an unlikely scenario, in our view), defense would likely be a modest 0.1 to 0.2% drag on overall gross domestic product (GDP) growth in 2013 and beyond.
Eliminating all “waste, fraud, and abuse” from the defense budget, while a worthwhile endeavor, would only make a small dent in overall spending.