US defense spending declined by more than 22% in the fourth quarter, compared to the prior quarter. That’s the steepest drop since the Vietnam War era, although there were a couple periods during the Clinton administration when the cuts came close.
As to why defense spending fell off the table in the fourth quarter, that’s something of a head-scratcher. Bank of America-Merrill Lynch analysts posit:
It is conceivable that the defense department reduced spending in anticipation of the fiscal cliff cuts. If the sequester kicks in as expected, we would expect further cutsin government spending starting in Q2.
It’s clear that defense contractors have been battening down the hatches lately. Back in November, the Washington Post reported:
The military vendors’ cash and near-cash items have swelled ahead of spending reductions expected to begin early next year that would total $1.2 trillion over a decade, with half coming from national-security programs. President Obama and congressional leaders held discussions last week that both sides called “constructive’’ as they seek a long-term deficit-reduction agreement that would let them avoid the automatic cuts.