Outlook - February 2009

U.S. output of medical equipment and supplies expanded by more than 3% in 2008, according to data from the Federal Reserve Board. This was much better than the decline of 2% for total U.S. industrial output, but it was moderately lower than the long-term average increase of 4% per year in medical equipment. In 2009, growth for medical products will be around 3%.

The tendency for medical products to post positive growth year after year, even during a recession in the overall economy, has given the medical industry a reputation of being “non-cyclical.” The reasoning is that most medical procedures and therapies are essential rather than discretionary; therefore, consumers will adjust their budgets and spending patterns accordingly. In times of economic duress, Americans might choose to forego a new car or refrigerator, but they will continue to sustain their levels of spending on medical products for as long as they are able.

There are also some very strong global demographic factors that favor increased spending on medical products but that do not fluctuate with economic cycles. These include the aging of the Baby Boom generation in the U.S. and Europe and the rapidly emerging economies of densely populated China and India. Suppliers of medical products will enjoy an expanding customer base for the foreseeable future..

 

IMMUNE TO RECESSION?

The recession-resistant nature of the industry makes it attractive today for venture capitalists eager to invest in larger companies with proven track records in established markets. But this is not to say that all manufacturers of medical supplies and equipment, especially the smaller producers, are completely immune to the current recession. The credit crunch has made it more difficult for many small companies to find funding to get products manufactured and brought to market. And though immediate growth in the industry may be constrained by present credit conditions, by far the biggest factors affecting the long-term growth in this industry will be regulatory requirements and government-mandated healthcare initiatives.

The new Congress will undoubtedly have healthcare reform at the top of its agenda in 2009. At the same time, most every state is looking at changes to the way it regulates the medical industry. All of these state and Federal efforts will have a profound effect on the way medical products are manufactured, marketed, and consumed in coming years. In the meantime, the uncertainty caused by all of the pending changes will likely impede long-term investment and R&D activity in this industry. Nobody wants to spend a lot of money developing and marketing a product just to see their return on this investment regulated away.

 

About the Author

Bill Wood, an independent economist specializing in the plastics industry, heads up Mountaintop Economics & Research, Inc. in Greenfield, Mass. He can be contacted by e-mail at BillWood@PlasticsEconomics.com. His monthly Injection Molding and Extrusion Business Indexes are available at www.ptonline.com.