The U.S. economy shrank at a less-than-projected 1% in the second quarter, a sign the worst recession since the Great Depression may be coming to an end. After shrinking 6.4% in the first quarter, law makers took initiative to halt the downturn through government stimulus. As a result, government spending rose 5.6%, which cushioned the 1.2% drop in consumer spending.  Increased consumer spending, which comprised 2/3 of GDP, will be necessary for positive GDP growth in the second half of 2009.

Aerospace, Aircraft, & Defense

The aerospace, aircraft, & defense industry is benefitting from another year of increased defense spending.  However, the Obama administration’s budget that takes effect in 2010 will cut inflation-adjusted defense spending for the first time since the Clinton administration.  Most of the spending cuts will only affect major players in the industry.  Small business contractors with technology that fits the bill for Secretary Gate’s “conventional warfare” approach will see increased valuations as 2010 approaches.

Orders for U.S. durable goods, excluding automobiles and aircrafts, rose 1.1% in June, possibly indicating that manufacturing will experience growth in the last quarter of 2009.  A significant boost in business investment will be necessary for manufacturing revenues to hit pre-recession levels.

Electronics

The electronics industry continues to be effected by cuts in household expenditures.  In an effort to save, many consumers are buying old discounted models, thus creating a slowdown in new product development.  Expect for increased M&A activity to take place once household incomes reach comfortable levels.

U.S. home prices rose .9% in May, providing signs of a rebound in the housing market.  Efforts by the Federal Reserve to keep rates low and free-up funding should lead to fourth quarter gains in the housing market.

Food & Beverage

Falling raw material prices continue to improve gross margins in the food & beverage industry.  Although deal flow is slightly down from  2008 YTD, we expect the impressive margins should generate increased deal flow in the fourth quarter of 2009 and first quarter of 2010.  Private-label food makers will be especially attractive for firms planning expand into the price-sensitive consumer market.