Military aid to Ukraine gives a shot in the arm to the U.S. economy

The increase in Pentagon spending has helped to keep manufacturers afloat. Orders for U.S. durable goods — or long-lasting products — have risen slightly in the past year.

Read: U.S. durable-goods orders climb on higher military spending

Yet if defense is excluded, new orders have declined in the past 12 months.

Since Russia invaded Ukraine in February 2022, the U.S. has allotted tens of billions of dollars in aid to Ukraine and supplied the country with lots of weapons and ammunition.

As a result, U.S. military stockpiles have become partly depleted. The government has moved to replenish the weapons sent to Ukraine as well as increase its military aid.

More recently, the Biden administration donated 31 Abrams tanks to Ukraine and the country is set to receive U.S.-manufactured F-16 fighter jets owned by European allies.

In August, government orders for defense capital goods surged 19%, most of it involving aircraft.

These military orders are largely flowing to major U.S. defense contractors such Boeing

BA

,
General Dynamics

GD

,
Northrup Grumman

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,
Raytheon

RTX

and Lockheed Martin

LMT

.

It’s not just military spending that’s giving manufacturers a lift. Huge federal subsidies for green energy and reshoring — enticing businesses to relocate back to the U.S. — have also helped to pad their revenue.

If not for government spending, U.S. manufacturers would be worse off. Orders have slowed in response to a softer economy, higher interest rates and a shift in customer spending habits.

Consumers in particular are spending relatively more on services than they are on goods, a reversal of what happened early in the pandemic.