Pentagon explains Panetta’s warning that sequestration would cost 1.5 million jobs

Defense Secretary Leon Panetta surprised everyone when he contended in September that the sequestration trigger would result in a 1 percent increase in the unemployment rate, costing 1.5 million jobs in defense and other areas. Nearly seven weeks later, the Pentagon has an explanation.

Pentagon spokesman George Little said in an email that the Defense Department worked with the University of Maryland to examine possible effects of various spending reductions. Officials plugged some numbers into an established forecasting model -- the Long-Term Interindustry Forecasting Tool -- and the data were applied to a simulation of the U.S. economy hit with across-the-board spending cuts.

One big caveat, however: The model doesn't factor in the tens of billions of dollars in war spending, known as overseas contingency operations, that the Pentagon counts outside of the regular defense budget.

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