Despite pessimistic outlooks of the U.S. labor market, healthcare industries expect explosive growth in their job market. According to a report released by the Executive Office of the President Counsel of Economic Advisers, a significant portion of the industries that will account for 86% of domestic job growth through 2016 are related to healthcare.  Home healthcare, outpatient care, dentistry, and diagnostic laboratories expect to lead the charge by adding  2.25 million jobs by 2016.  Healthcare reforms passed by Congress will accelerate job growth past these current projections.

Healthcare Services

Congress set August as a deadline for passing the healthcare reform bill through the House and Senate.  Until then, the direction of the industry remains unclear.  Expect for deal flow to remain steady through the rest of July before an active period in August.

Sales rose 0.6% in June for U.S. retailers, signaling consumer confidence is cautiously rising.  Most of the progress was fueled by the automobile industry, which reported a 2.3% increase in June.   Significant recovery in the retail sector require improvements in the labor market.

IT Consulting

The IT consulting industry will rely on government contracts to drive industry growth through the second half of 2009.  With IT expenditures down in the private sector, an emphasis of IT spending by the Departments of Defense and Homeland Security should increase deal flow before the 2010 federal budget takes effect.  We expect cloud-computing and cybersecurity specialists will receive exceptionally high valuations in the near future, because their respective government budgets plan grow 27% and 8% in the next five years.

U.S. producer prices rose in June twice as much as expected, signaling inflation may come in the foreseeable future.  The  1.8% surge in prices was lead by a 18.5% increase in the price of gasoline.  Until fuel prices fall, consumers continue to receive the burden of fuel surcharges moving down the supply chain.

Healthcare Staffing

Deal flow in healthcare staffing remains stagnant as buyers wait to see the progress of healthcare reforms in Congress.  If it becomes clear that a reform bill will pass, M&A activity should pick up significantly in anticipation of patient flow increases.  Until then, healthcare staffing firms will try to survive the period of decreased demand and shrinking bill-pay spreads.

Initial jobless claims decreased last week to the 565,000, the lowest level since January.  Even with the slowdown, recovery efforts will remain stagnant until firms start to hire.

Banks continue to tighten lending standards as a result of record high credit delinquencies.  The American Bankers Association released a statement reporting delinquent payments on consumer debt rose to 3.23% in the first quarter of 2009.  This rate does not include credit card delinquencies, which also hit of record of 4.75% in the first quarter.  This comes as a result of soaring unemployment and pay cuts that have made it difficult for many American’s to pay of their loans.  Since loan delinquencies are tied to the fate of the job market, the credit crisis will likely not improve in the foreseeable future.

The Institute for Supply Management released data showing that the U.S. non-manufacturing sector was driven higher in June. This rise was primarily fueled by increased export order activity. The non-manufacturing purchasing managers index was 7% higher than in May and the business activity/production index was 17% higher. As various signs of the economy stabilizing continue to appear financial markets should continue their upward trend albeit at a slower pace than we experienced during 2Q09.

Building Materials

The Purchasing Managers Index indicates home prices will likely decline through 2011 in the 20 largest U.S. metropolitan area, leaving homeowner’s reluctant to renovate or expand.  Any home improvements add little to no value to the home’s price and result in a net loss on investment.  The building supply industry will rely primarily on new home starts as a revenue driver for upcoming quarters. The 4th quarter of 2009 expects quarter-over-quarter new home growth for the first time since 2007, which should boost valuation multiples for firms that were able to avoid default.  

The broader unemployment rate, which includes people who have stopped searching for jobs, reached 16.5% in the month of June.  After soaring at the beginning of the year, the pace of the increase has begun to mirror the monthly rise of the “headline” rate the past few months.  This most likely signals workers are searching for jobs once more.  

The FDIC recently proposed a set of new guidelines regarding the purchasing of banks by private equity firms. The new guidelines contain aspects that will be both helpful and restrictive to PE groups interested in making acquisitions. While the guidelines will allow more types of investors (including PE groups) to acquire banks they will also prevent them from acting overly aggressive. Some of the highlights of the proposed guidelines include a mandatory investment period, higher capital reserves and the requirement that PE investors remain behind-the-scenes after the initial injection of capital.

The rapid decline in manufacturing that started last summer appears to be over as factory orders increased in May for third time in three months.  This substantiates our Second Quarter 2009 M&A Report that predicts rising consumer sentiment and low inventory levels will lead to an increase in factory orders.

The unemployment rate hit 9.5%, the highest level since 1983, as U.S. employers cut another 467,000 jobs in June.  With the unemployment projected to climb even higher in the next few months, economic growth starting in the fourth quarter of 2009 looks less likely.

Fabricated Metal Products

A decline in housing starts and international competition are drying up demand for U.S. fabricated metal products.  As expected, valuations and deal flow are down in 2009, 15 in ‘09 YTD versus 26 in ‘08 YTD.  However, industry margins expect to recover from a decline in input prices.  Improving margins coupled with advances in the housing market will increase long-term valuations.