Your Business Economic - February 2008 Outlook

Burgeoning growth of the medical industry in recent years has been accompanied by an increase in the amount of data and statistics that measure the health of the market for medical goods and services. Virtually all of these statistics indicate that the medical device and supplies industries are expanding at a strong rate, and that the expansion will continue for the foreseeable future. This is good news for the plastics sector because it highlights the continuing need for more processors, toolmakers, and machinery suppliers to get involved in the manufacture of medical parts and supplies.

No trend illustrates this better than the recent jump in the number of medical device manufacturers that are registered with the FDA. In the past year alone, the number of registered medical-device establishments jumped 27% from 12,679 to 16,095.

Breaking these data down by state shows that the largest number of establishments by far is in California which is home to nearly one-fifth of all medical-device establishments. Other states in the top five are Florida, New York, Massachusetts, and Pennsylvania. States that boast the fastest growing medical-device sectors in 2007 include Texas (up 32%), Ohio (up 28%), New Jersey (up 27%), Minnesota, and Illinois (both up 26%).

This kind of growth would not be possible without a substantial input from Wall Street and venture capital. And while the final financial numbers are not yet available, it is clear that 2007 was a record year for medical-device investing. The amount of venture capital that went into this industry is estimated to have increased by as much as 50% over the 2006 total. And for companies that are publicly traded, the medical-device industry was once again ahead of the average for the S&P 500 in most of the major performance categories.

Ultimately, what is driving the investment and profits in this sector is the ever-increasing demand from consumers. Everyone is aware of the fact that the baby boomers are getting older, and that they have demonstrated a clear propensity to consume increasing amounts of medical goods and services. The data bear this out. After adjusting for inflation, the average growth in consumer spending in the U.S. over the past 10 years has been 3.7% per year. During this same period, the rate of growth for spending on medical care has increased by 4% per year. This may not seem like much of a difference, but medical care is now the top-ranked category in terms of personal consumption expenditures, well ahead of food products, transportation, and even housing. Medical care currently accounts for nearly one-fifth of all U.S. consumer spending.

In terms of the volume of medical equipment and supplies, U.S. output of these goods expanded a solid 7% in 2007 after a gain of 6% in 2006. For 2008, this rate of growth will moderate a bit, but not much. Our current forecast calls for a gain of at least 5%. This means that the medical device industry will continue to represent a growing opportunity for plastics processors in 2008 and beyond.

 

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.