October 12, 2026

The below transcript is a translation of the podcast audio that has been machine generated by Notta.

00:00 Derek Stanely So effectively, we are continuing to fund agencies at 2026 levels, or I should say fiscal year 2026 levels. The big risk at this point is that, you know, that funds us through December 11th of this year, which brings us past the elections.

00:16 Taylor St. Germain Hi everyone. I’m Taylor St. Germain with ITR Economics. Welcome to TrendsTalk, your apolitical and unbiased source of economic intelligence. Today I have my colleague Derek back with us because we are going to discuss defense today. We have a K-shaped economy, it’s something we’ve talked about on TrendsTalk in the past. There are some industries driving the upper end of that K, the higher growth industries. There are other industries that are struggling along. And today we wanted to highlight the defense industry as one of those industries that is the upper end of the K. We are seeing significant growth in the defense industry today, and we have some very attractive growth rates forecasted for this industry over the course of the next two years. This is one of our Trends Report series folks, so please head over to the Trends Report and check out our series that we titled US Defense Capital Goods New Orders. This series is a Census Bureau series, and it’s one that we forecast on a regular basis. We are projecting that Defense Capital Goods New Orders finishes up about 31.7% in 2026, and that’s compared to 2025. And in 2027, when we have a lot of the rest of the economy slowing down and struggling, we still have a very attractive growth rate for defense. And we have that growth rate coming in at 25.6% year-over-year. So, it is slowing if you want to be technical about it, from the 31.7% this year to the 25.6% next year. But when a lot of industrial industries will be flat to slightly down in ‘27, we really look at the defense industry as a potential opportunity. Now, folks, we are apolitical. As I said in the beginning, we’ll always be apolitical. But things like defense bills and the defense industry are certainly impacted by politics and decisions that are being made in Congress. And that’s part of the reason I brought Derek on here today, is to highlight where the defense bill is at. If you all remember, a bill went through the House not long ago. And so I wanted to Derek, to come on and give you a little bit of perspective of where that bill’s at and how it relates to our forecast, whether it’s an upside risk or a downside risk as we look into the next year. So, Derek, why don’t you give everyone a little bit of a snapshot of what’s going on in the world of Congress with the bill and maybe a little bit behind the bill?

02:31 Derek Stanley Yeah, absolutely. And as always, thanks for having me back. So, you mentioned a pretty big dollar amount for our forecast for US Defense Capital Goods New Orders. So that’s largely dependent on the passage of this bill. And what we’re looking at the moment is the non National Defense Authorization Act. So, within our legislative branch, the executive branch, you know, the Defense Department passes through the request through the Office of Management and Budget. That goes over to Congress at that point. We have two chambers, the House and the Senate. So far over the summer, the House did pass their version of the bill, largely on party lines, and I’ll explain why that’s important in a moment. But that totaled about $1.15 trillion, which is a substantial increase over fiscal year 2026. Now, the fiscal year for the federal government starts October 1st of every year. So, we are into October at this point, so we’re in the new fiscal year. But at the time of this recording, we haven’t seen the passage on the Senate side yet. So, we don’t have that new bill in place. And what we do have is, and I’m referencing this, it’s the Continuing Appropriations and Extension Act of 2027. So effectively, we are continuing to fund agencies at 2026 levels, or I should say, fiscal year 2026 levels. The big risk at this point is that, you know, that funds us through December 11th of this year, which brings us past the elections. As everybody knows, ITR is apolitical. We really don’t care which way you lean. We really don’t care about the outcome of the election. We just want to know what the policies will look like after the fact. So traditionally, the president’s party is playing defense in midterm election years. So, we don’t know how that’s going to pan out. We just we don’t have that kind of forecasting capability, but it could change the narrative after the elections in terms of what the final bill looks like. If we are, you know, assuming that, you know, if it passed the House, we’re going to see that same passage in the Senate either before or after the election, what that could mean is, you know, a drastic increase. So those numbers you mentioned in Defense Capital Goods and New Orders could benefit industries like aviation. We would be investing in our aircraft, we could be investing in our naval defense. We will be, you know, looking at increasing the amount of destroyers potentially that we have, investing in aircraft carriers, making sure that we’re projecting that peace through strength effort that the administration’s been touting. That’s obviously a big part of their agenda. And of course, you know, we are involved in conflicts overseas and there are concerns about munition or ammunition depletion. We want to make sure that, you know, we’re continuing to invest in there. So, any industries out there who are tied to the defense sector, either directly or indirectly, are likely going to see some uptick in opportunities. So again, the biggest risk is the elections. We have no control over that. We don’t know how that’s going to pan out. And we don’t know exactly what the final defense bill will look like after that. But assuming that we do see some sort of increase over the previous year’s allocation for discretionary spending in that department, companies tied to that do want to consider capacity. Do you have the capacity to meet increased demand in this market? Do you have the labor that you need? Do you have the capital equipment that you need? Are you making sure that you have the right pieces where they need to be to strike while the iron’s hot again. Taylor, after you know the passage of the bill, whenever that is, the biggest risk is timing. Once it goes to the Defense Department, they have their money. We don’t know exactly when those dollars are going to hit, but they will be there. So at least there’s that upside potential, and that’s why we’re sticking with our forecast right now. Again, we realized there’s risks out there on the political front, more so in this sector than any other. But at the moment, from a demand perspective from, you know, kind of just taking a glance of what’s happening in the world, this does seem to be a market that could provide some upside to  clients that operate in that space.

06:31 Taylor St. Germain Yeah, absolutely. And folks, I want to remind everyone too, the defense industry is on one of our, is on our 2030 list, the good list, you know, potential opportunities as we move forward. You know, I think we’ve seen increased nationalism around the world. And, you know, something I give our former president and CEO, Alan and Brian, a lot of credit for is they called nationalism. They expected to continue to see this heightened sense of nationalism throughout the 2020 decade. And we’ve just continued to see that. And that really is supportive of, you know, higher defense budgets. You’re seeing that not just here in the US, but we’ve seen it from another, a number of countries around the world, Germany, Canada, a number of folks highlighting this. So, we see this not only as a near-term opportunity to offset some of the challenges in ‘27, but also to offset some of the decline that we would expect to see during that 2030 downturn. So, we know the defense industry it’s a tough nut to crack if you’re not already involved in that industry. But it’s certainly not too late and it will only set you up for success, again even as we think about our 10, 15 year forecast. So, look to some of those companies, industries as potential growth areas. This is not stock advice, so please don’t take it that way. We’re talking about the broader industry here as a whole. But it is going to be something that we’re paying attention to when it comes to midterm time, midterm time here about a month from now. Again, that’s our job, folks. We’re really looking for industries in 2027, especially that are going to offset the, some of the slowing and some of the weakness that we would expect to see in the economy. Derek and I will continue to cover those. You know, again, the key takeaway for us, as we digest this information is, look for those industries on the upper end of the K, defense can certainly be one. You see the passage of this bill. That’s only upside to some of the numbers I shared. So, certainly look towards some of those markets. When we enter slowing growth, it is all about finding markets that are countercyclical to that slowing growth. And we really see this as an opportunity there. So, if you found this information, our analysis helpful here, please like and subscribe to TrendsTalk wherever you listen to your podcasts. Thanks for joining me, Derek. Thank you all for joining us and we’ll see you next time.