Last month, President Trump promised the American people that he would "rebuild the military, eliminate the Defense sequester, and [initiate] one of the largest increases in national defense spending in American history."
Fiscal 2018, promised the president, would feature a $54 billion increase in defense spending, giving the Pentagon enough money to spend with abandon on everything from bombs and rockets from Boeing (NYSE: BA) and Raytheon (NYSE: RTN), to new warships from General Dynamics (NYSE: GD) and Huntington Ingalls (NYSE: HII), needed to build the President's promised "350-ship navy."
But here's the thing: Most American taxpayers think we're spending too much on the military already. In fact, most Americans think we should be cutting the defense budget instead.
Survey says ...
That's the upshot of a new poll conducted by the University of Maryland's Program for Public Consultation (PPC). Surveying more than 1,800 registered voters, PPC presented the federal government's 2017 budget as a series of 31 line items. PPC then asked voters to tweak those numbers into their ideal federal budget for 2018 -- and then compared voters' ideal budget with the actual budget that President Trump proposed last month.
In several areas, voters broadly agreed with the president's proposals. For example, both voters and their president agree that the U.S. spends too much ($36 billion) on the State Department and the Agency for International Development, and on NASA as well ($19 billion).
On other items, they differ. For example, voters generally disagreed with the president's proposal to make steep cuts in education spending, and to cut funding for medical research. The biggest disagreement, however, was over funding for the military.
Guns or butter?
President Obama ended his term in office with fiscal 2017 defense spending budgeted at $584 billion. That included both a base level of funding, extra funds for "overseas contingency operations" (OCO) -- primarily combat operations in Syria, Iraq, and Afghanistan -- and nuclear-weapons funding as well. But according to PPC's poll, that's too much money to be spending on defense.
Given their druthers, voters surveyed by PPC said they'd prefer to cut the 2017 Obama defense budget by $41 billion -- not increase it by $54 billion. Voters recommended cutting the base budget by 5% ($26 billion), pulling back internationally and cutting OCO funding by 23% ($15 billion) in the process. And voters think the nuclear arsenal is fine as is and oppose spending more money to "greatly strengthen and expand it."
What it means to investors
So what cues should investors draw from these results? I see at least two ways of looking at all of this.
In a follow-up analysis of the PPC survey, Salon.com pointed out that while the disconnect between President Trump's proposed budget and the budget favored by voters is large, voter attitudes toward defense spending haven't really changed all that much in recent years. Similar surveys of voter sentiment conducted in 2016, and even as far back as 2012, showed similar levels of voter antipathy to the high cost of defense.
Yet after declining sharply with America's abbreviated withdrawal from Iraq in 2012, overall defense spending has largely held steady since. For whatever reason, it appears that no matter what their constituents say, Congress simply isn't willing to cut spending on defense. That's bad news for democracy -- but maybe good news for Boeing, Raytheon, and all the rest.
On the other hand, with President Trump in the White House, it's possible we'll see a new dynamic take hold in Washington. Whatever else you may think of him, Trump is not a business-as-usual politician. Even his supporters agree that our new, unconventional president is extraordinarily sensitive to public opinion and poll numbers. It's possible, therefore, that if polling continues to favor cutting defense spending, future White House proposals will feature leaner budgets for the Pentagon.
Only time will tell if that's the case, but for investors in the defense industry, it's something to bear in mind.
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