It Was Just A Flesh Wound

“It was just a flesh wound”. For those of you not Monty Python fans, this quote was uttered by the Dark Knight after losing both arms in a sword fight and is an apt description of our economy for the past 24 months. This recession has been longer and deeper than any since the great depression testing the metal of CEOs, who were forced to make tough personnel and spending decisions to preserve cash flow. Fortunately, we believe those painful decisions are in the rear view mirror and management teams can once again focus on top line growth.

Throughout 2010 and into 2011 we expect improving macro economic conditions which will be tempered somewhat by restrained consumer spending and a cloudy employment picture. Although economic conditions are improving, it is instructive to remember from December 2007 through December 2009, the U.S. Economy shed approximately 7.4 million jobs and the current real unemployment rate, after including 3.7 million-plus people who are reluctantly working only part time, remains approximately 16%. However, the addition of approximately 220,000 non census related jobs in March and historical post recession employment trends provide reasons for optimism.

Additionally, most economists are opining the worst appears behind us, as evidenced by leading indicators such as the Purchasing Managers Index which reached 60.4 in April, 2010, the highest reading since the start of the recession in December 2007. This was the ninth straight month the PMI exceeded 50 (Note: A reading above 50 indicates the manufacturing economy is generally expanding; below 50 indicates it is generally contracting).

In general, most manufacturing companies, including our portfolio, are experiencing improving sales, bookings and quote activity compared to prior year and the prior quarter, which bodes well for the rest of the year.