Slower Growth for Medical Devices
MARKET WATCH
Lower projected spending on healthcare in 2015 is the reason.
Medical-care spending, as reported by the Bureau of Economic Analysis, was subjected to large revisions throughout 2014 as the government struggled to estimate the impact of the Affordable Care Act (ACA) on the medical industry. First-quarter data originally projected healthcare spending making a major contribution to GDP. Then it was revised downward, virtually eliminating any positive impact of healthcare spending on GDP in Q1. Yet by the end of 2014, the trend in medical-care spending was virtually unchanged from what it has been for the last 15 years.
Medical-care spending continues to increase. The rate of growth had fallen sharply in 2013, most likely as a result of consumers taking a wait-and-see approach on spending due to the pending ACA. Then, throughout 2014, healthcare spending grew at an accelerating pace. However, the acceleration in spending was much more subdued than in late 2010/early 2011 and the second half of 2012. Based on the recent trend, it appears that there will be decelerating growth in medical-care spending in 2015.
Medical-care spending is a leading indicator of medical equipment/device production. Spending tends to lead production by six to 12 months (see chart). While the correlation between spending and production held, it seems that medical-equipment production grew at a faster rate than it should have in 2013 in anticipation of the ACA.
Then, production seemed to miss its every-other-year cycle of significant swings in its rate of growth. So, medical-device production has stayed at an elevated rate of growth for nearly two years, which is relatively uncommon. Therefore, with spending looking like it’s ready to grow at a slower rate in 2015, it’s likely that medical-device production will follow. The current rate of annual growth in production is about 6%. But, if past correlations hold, then it’s possible that production might grow at 0-2% in 2015.
Gardner’s business index indicates that the medical industry has struggled in recent months. Since August, the overall index has dropped from 59 to 40.9 in December (above 50 is expansion; below 50 is contraction). While it appears that the medical industry typically suffers a seasonal swoon in the fourth quarter, this recent drop is larger in magnitude than in previous years.
In particular, new orders have fallen off a cliff, contracting significantly in the last four months. Yet, while the production index has fallen since June, it is still above 50. Because new orders have collapsed with production continuing to grow, backlogs at medical OEMs have contracted significantly since Q4 2014. The rate of contraction is much more severe than at any other time since our index started in December 2011. And exports have contracted in the last two months. Because of the rapid decline in backlogs, supplier deliveries have shortened noticeably as well.
Despite all of this, future business expectations generally rose in the fourth quarter.
Related Content
Prices Up for Nearly All Major Volume Resins--For Now
As the third quarter was coming to an end, prices of nearly all volume resins were higher or heading that way. But flat or even lower prices are seen ahead.
Read MoreExtrusion: 'Melt-Blown' Fiber: What You Need to Know to Enter the Face Mask Market
Coronavirus pandemic has made extrusion processors curious about entering the face-mask market. But melt-blown fiber is very different from most other extrusion processes and requires specialized equipment.
Read MoreiMFLUX Leverages Its Resources to Fight Coronavirus
P&G’s subsidiary pressed its design and moldmaking expertise into service to make face shields and nasal test swabs for the COVID-19 pandemic.
Read MoreInjection Molding: Faster, Smarter, More Efficient Machines Tackle Sustainable Molding at K 2019
Blazing speed plus shrinking energy consumption supported the “green” theme at the big show. Smarter controls and growing connectivity were another key focus.
Read MoreRead Next
Advanced Recycling: Beyond Pyrolysis
Consumer-product brand owners increasingly see advanced chemical recycling as a necessary complement to mechanical recycling if they are to meet ambitious goals for a circular economy in the next decade. Dozens of technology providers are developing new technologies to overcome the limitations of existing pyrolysis methods and to commercialize various alternative approaches to chemical recycling of plastics.
Read MoreProcessor Turns to AI to Help Keep Machines Humming
At captive processor McConkey, a new generation of artificial intelligence models, highlighted by ChatGPT, is helping it wade through the shortage of skilled labor and keep its production lines churning out good parts.
Read More