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How the U.S. gun industry became so lucrative

The U.S. gun industry has been going through a rough patch ever since the school shooting in Newtown last Friday. Retailers are pulling weapons from their shelves. Private equity firms are jumping ship. Stocks are plummeting.

But even a rough patch can't change the fact that the guns and ammunition industry continues to thrive in the United States. This year, the industry is expected to rack up a steady $11.7 billion in sales and $993 million in profits, according to analysts at IBIS World. Gun makers churned out nearly six million guns last year — double the number that they did a decade ago.

So here's a look at seven ways that the U.S. gun industry became so lucrative.

1. The recession and President Obama have been a boon to gun makers.

Civilian gun sales have surged ever since the financial crisis and the election of President Obama. Many buyers, IBIS notes, were either worried about rising crime rates during the downturn or fearful of new gun-control laws under the Obama administration. Since 2007, the industry has grown at a brisk 5.7 percent annual pace.

Analysts have called Obama "the best thing that ever happened to the firearm industry."  During the first three-and-a-half years of the Obama administration, the FBI conducted nearly 50 million background checks on gun purchases — nearly double the amount during George W. Bush's first term. (That's usually a good indicator of rising interest.) The number of licensed dealerships has risen for the first time in 20 years.

2. While private citizens still make up the bulk of gun purchases, the industry is also heavily reliant on sales to government agencies.

Back in the late 1990s, the gun industry was actually facing decline, as the economy was humming along and crime fears were subsiding. Then Sept. 11 hit. Thanks to new counter-terrorism measures, law enforcement agencies and the U.S. military started buying up weapons at a faster pace, reviving the industry. Today, government agencies make up 40 percent of industry revenues:

That's not necessarily good news for the gun industry in the years ahead. States are now paring back on budgets and law enforcement agencies are slowing down their purchases. IBIS World projects the gun industry to grow slightly more slowly in the next five years than it did in the last five.

Case in point: In a recent filing with the U.S. Securities and Exchange Commission, for instance, Smith & Wesson noted as one of its “risk factors” that it had yet to secure a long-term contract with the U.S. military. “As a result, 89.0% of our net firearm sales remain in the sporting goods distribution channel.”

3. Handguns make up roughly half of the guns produced in the United States nowadays — and that number has been growing rapidly.

In 2011, about half of the six million guns manufactured in the United States were pistols and revolvers. That's up from just one-third in 2001, according to a report from First Research. Rifles now account for 35 percent of the market, with shotguns and other guns making up the rest.

4. Ammunition is an enormous portion of the gun industry's revenues:

Here's how one gun lobbyist put it: "You make a product for $300, and somebody could buy this revolver and, by the time they are 80, they'll have fired $10,000 worth of ammunition through it."

In 2012, the industry made nearly as much on small arms ammunition as it did on small arms.

("Other ammunition" in this chart includes bombs, grenades, mines, mortar shells. "Other ordnance" includes things like antiaircraft artillery, antitank rocket, field artillery, and so forth.)

5. Exports to other countries are also a huge part of business.

U.S. firearms manufacturers will export some $4.4 billion worth of guns and ammunition to other countries this year. The biggest customers are Canada, the United Kingdom, and Australia, who accounted for nearly 40 percent of exports in 2012 (it's mainly law enforcement and military agencies doing the buying, as private gun ownership is heavily regulated in those nations). IBIS World expects exports to keep surging in the coming years, with ammunition and ordnance being an especially popular item overseas.

6. Gun sales tend to spike after mass shootings.

Most gun-store owners attribute this spike to worries about new gun control laws. "Normally what happens—and I've been doing this for 30 years—is whenever they start talking about gun control on the news and they start pushing that, people have a tendency to think they're going to take away their right to buy the gun, and that usually spurs sales,” Paul Decker, owner of Hunters Heaven in Hayes, Va., told the Christian Science Monitor.

The same thing happened after the Newtown massacre. An estimated 120,000 to 130,000 guns were sold on the Saturday after the shooting. Bushmaster AR-15 style rifles, similar to the ones Adam Lanza used, have been an especially popular item. "They've been selling faster than manufacturers can produce them," said one gun-store owner.

7. Wal-Mart has become the largest seller of guns and ammunition in the United States.

Just a few years ago, it was hard to find guns in Wal-Mart outside of rural hunting areas. But in 2011, in an attempt to revive flagging sales, the behemoth retailer decided to expand  gun sales to half of its 3,982 stores nationwide — including in some urban areas like Albuquerque.

This long investigation by George Zornick tells the tale of how Wal-Mart conquered the U.S. gun market. The company now sells 400 guns in its stores. Sales have been brisk. The FBI received nearly 16.8 million background check requests this year. "Walmart is now the biggest seller of firearms and ammunition in America," Zornick writes.

For some companies, Wal-Mart is utterly crucial. Financial disclosure forms for Freedom Group Inc., the largest gun maker in America, reveal that 15 percent of its sales came from Wal-Mart alone last year.

8. The gun industry has helped make the NRA enormously powerful — but the industry and the NRA don't always see eye to eye.

No one knows exactly how much gun manufacturers contribute to the NRA — the group doesn't have to disclose donations. There are at least $38.9 million in public "sponsorships," but actual donations are thought to exceed that. In any case, the NRA, with its four million members, is certainly well-funded, and able to vastly outspend gun-control groups:

Still, the NRA and gun manufacturers often disagree on key issues. And, when they do, the NRA usually wins. Here's a fascinating anecdote from Jarrett Murphy:

When Smith & Wesson struck a deal with the Clinton administration in 2000, agreeing to a long list of changes to its products and business practices—including limiting the size of magazines for its semi-automatic weapons and avoiding dealers who sold a disproportionate number of guns later used in crimes—the gun lobby howled. It led a boycott of Smith & Wesson that nearly killed the company; in a span of just two years, the number of guns manufactured by Smith & Wesson fell by 44 percent. “They just beat the crap out of Smith & Wesson for a while, then let them back in,” says Diaz. Colt Firearms and Sturm, Ruger have been similarly punished for crimes against the Second Amendment.

Still, these spats are rare. By and large, the NRA has managed to fend off restrictions on guns for years — there hasn't been a gun-control bill pass Congress since 1999. And that's been good for business.