Rebounding US economy to breathe new life into defense?

The aerospace & defense industry has been a keystone of the U.S. economy for decades having contributed significantly to it. The importance of the industry stems from the strategic role it plays in the country’s security.

The U.S. is on an impressive growth trajectory with the economy showing its strongest two consecutive quarters of growth in more than a decade. The economy expanded at a solid clip of 3.9% annually in the third quarter, up from the initial estimate of 3.5%.

This was preceded by 4.6% growth in the second quarter. The third quarter was buoyed by a surge in military spending along with a drop in imports. This shows that the U.S. economy is on a relatively solid footing even as concerns build up about a global slowdown.

Government spending provided a boost to the third quarter GDP. The 16% growth in defense outlay has been the fastest in five years triggered by increasing spending on ammunition and jet fuel.

And yet there is no denying that the aerospace and defense sector is up against an apathetic market, as military budgets remain under pressure in the U.S. due to sequestration. Nonetheless, the industry has emerged relatively unscathed due to fleet renewals at airlines worldwide with more fuel efficient aircraft, a growing international market for the F-35 Joint Strike Fighter and increasing application of unmanned aircraft in warfare today.

Further, the resignation of U.S. Defense Secretary Chuck Hagel and rising threat from the Islamic State (“IS”) in Iraq and Syria might see an increase in U.S. defense expenditure. The Republican win in the mid-term election could spur higher defense spending, as they’ve historically been fierce critics of defense budget cuts.

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