  We find that the early impact of defense news shocks on GDP is mainly due to
a rise in business inventories, as contractors ramp up production for new
defense contracts. These contracts do not affect government spending (G) until
payment-on-delivery, which occurs 2-3 quarters later. Novel data on defense
procurement obligations reveals that contract awards Granger-cause
VAR-identified shocks to G, but not defense news shocks. This implies that the
early GDP response relative to G is largely driven by the delayed accounting of
defense contracts, while VAR-identified shocks to G miss the impact on
inventories, resulting in lower multiplier estimates.
