Various measures of employment and personal income, while arguably uninspiring for a recovery, point to improving economic health for the U.S. consumer. More specifically, first time jobless claims have maintained a downward slope over the last twelve months and the monthly change in non-farm payrolls has trended up over the last twelve months with recent October and November jobs data (preliminary) exceeding expectations as depicted on the following graph.
With the improving employment landscape consumer finances have also improved. Since the end of the recession in Q3 2009, personal incomes and spending have experienced a cumulative annual growth rate of 3.7% and 3.2%, respectively (see graph below).
As a bonus to the consumer, since 2009 inflation has generally been below 2% and is virtually nonexistent (you can thank low oil prices) in 2015. Given the above, one would expect solid economic conditions. However, economic growth, as measured by the manufacturers’ Purchasing Managers’ Index (PMI), has been trending downward since October of 2014 suggestive of an economy losing steam. Further, S&P 500 composite revenues are down approximately 3% YOY for the recent quarter ending September 30, 2015. While there is reason for concern, we believe the improving economic health of the US consumer should soften the impact of certain depressed market segments, such as oil and gas production, agriculture and mining. We remain confident in the strength of housing, and housing related spending and continue to hunt for new platform investments and strategic add-on acquisitions to American Home Products (an MCM III portfolio company).
MCM Capital Partners is a microcap private equity fund focused on acquiring niche manufacturers and value added distributors generating $15 million to $75 million in annual revenues.