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Despite Ukraine, the economy is not booming for American arms makers right now

Haamden, small This town in the backwoods of southern Arkansas is a world away from the outside world. Quiet place. This time of year, more Halloween dolls are tied to lampposts than there are people on the streets. There is also a reason to bow your head. Nearby Highland Industrial Park has several manicured lawns amidst thousands of acres of dense forest and is home to some of America’s largest arms makers’ factories, including Lockheed his Martin and Raytheon Technologies. Arkansas Secretary of Commerce Michael Preston said, “It was kind of a hidden secret. Or, as a local businessman whispered, ‘That’s horrible: ‘Shhh.'”

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The war in Ukraine made it difficult for Camden to remain low-key. Behind high fences and canopies, arms manufacturers are assembling many of the weapons made famous by Ukrainians to use to stave off Russian aggression. javelin missile, Himal guided missile launcher and GMLRS The rocket known as the “Gimmler” tv set and social media. News website Politico recently described Camden as “the struggling town in Arkansas that helped stop Russia from getting off the ground.” It’s getting a lot more attention, including your columnist. I was. More aptly, he expected to see America’s military-industrial complex in a state of total war. Instead, he discovered how the juggernaut part of America’s defense could hold its back.

In theory, these should be great times for weapons manufacturers. Russia’s attack on Ukraine, combined with strategic concerns about China, has boosted the proposed US defense budget for next year, including the procurement of new firepower. America from February NATO Allies have also pledged to spend more on defense, likely boosting demand for American kit like Lockheed Martin’s. debt-35 fighter. Many of the American weapons supplied to Ukraine were we Military stockpiles need to replenish the industry’s surge in production capacity.The prospect of rising demand, combined with the view that defense companies are safe havens in times of economic turmoil, has pushed their share price up. S.&P. 500 indexes since February. On Oct. 18, Lockheed’s Martin stock surged to its highest level in more than two years after third-quarter earnings slightly beat expectations.

However, when you drill down, things don’t look so buoyant. The surge in Lockheed’s stock was more due to the company’s promise to return large amounts of cash to shareholders than to bullish forecasts about orders. In fact, we expect sales growth to be flat next year and in the “low single digits” next year. The view from Camden is equally somber. Locals report little sign of a surge in Ukrainian-related production. That’s because the industry, like other American manufacturing, is suffering from the post-pandemic fallout of rising inflation, supply chain strains and labor shortages. The chances of changing social priorities are slim, but weigh heavily on people’s minds.

The coldest reality is that the industry is not as stagflation-resistant as it seems. Yes, some contracts are ‘cost plus’, where companies are guaranteed a markup on unit production costs. But until Congress approves a new defense budget, many programs will be funded at last year’s price levels, unable to offset costly supplies and personnel. Years of consolidation have weakened supply lines, as the think-tank Institute for Strategic and International Studies highlights. When prices rise, suppliers are reluctant to make long-term commitments. That’s why companies like Lockheed have been forced to pay their suppliers upfront to get the wheels moving for higher production. Job postings far outnumber hiring in the Camden area. The Southern Arkansas University Institute of Technology, which trains students in skills such as welding, recently renamed its sports team “Rocket” to promote job opportunities in missile defense.

Part of the problem is that the industry seems to have two minds about making heavy weapons. Some of the fastest growing defense spending is fancy programs like space and hypersonic aircraft. Ground weapons such as vehicles and long-range missiles are low priority. This led a former Arkansas general to become frustrated that weapons manufacturers often overlook ground forces. It’s been seen as just walking in mud,’ he grunts.

Lady Maga

Then there is politics. The chances of a Republican gaining in the midterm elections usually cause optimism in the arms business because of the Republican party’s hawkish reputation on defense. As you may recall, the Republican candidate for Arkansas gubernatorial race is Sarah Huckabee Sanders, who served as White House press secretary under Donald Trump. This underscores the potential Trump influence that could resurface after the election and divides consensus on support for Ukraine. NATO Alliance.

Camden residents are hesitant to discuss defense, but some believe production will pick up within a few years. is. The town is considering providing more housing to attract workers. A craft brewery recently opened in Camden, providing nightlife for defense personnel. The town is trying to come to terms with its new status. Military industrial machines also rarely move at rocket speed.

Read the article by Schumpeter, a columnist on global business.
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https://www.economist.com/business/2022/10/20/despite-ukraine-these-arent-boom-times-for-american-armsmakers Despite Ukraine, the economy is not booming for American arms makers right now

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