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7/28/2014 | 2 MINUTE READ

Medical Equipment Production to Grow in 2014

Market Watch
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Signs suggest increasing capacity utilization and capital equipment investment for processors in this market.

Medical care spending has been on a roller-coaster ride since the start of 2014. Before the May consumer spending report from the U.S. Bureau of Economic Analysis, medical care spending was growing at the fastest month-over-month rate in decades. But with the release of May consumer spending data, the growth rate  was lowered significantly. 

Despite the revision to medical care spending in the first four months of 2014, the rate of growth remains relatively strong. Since the fall of 2011, the annual growth rate has hovered just below 3%. This is significantly better than the trend in medical care spending from middle of 2008 to the middle of 2010, when the growth rate was steadily decelerating. Many are surprised that medical care spending has not increased much more so far in 2014, thanks to The Affordable Health Care Act, aka Obamacare. However, the full brunt of the law hasn’t hit the consumer yet because everyone realized the costs were going to up too much. So, many of the provisions for increased care have been held back to this point. 

Throughout 2012 and into the first part of 2013, medical equipment production grew at a rapidly accelerating rate. This was in response to the significant surge in medical care spending in 2011. But growth likely went higher and carried on longer than it should have in anticipation of the roll-out of Obamacare. Therefore, since the beginning of 2013, medical equipment production has grown at a decelerating rate even though medical care spending has grown at a constant rate. Unless medical care spending starts to grow faster, medical equipment production will likely grow at a slower rate for the rest of 2014.

Since December 2011, the medical equipment market has grown at a significant rate almost every month. This is by far the best performance of any end market, according to our business index. New orders have grown in all but three of those months. Since February, new orders have grown at a rapidly accelerating pace, reaching their fastest growth since April 2013.

Production is somewhat more volatile, but it too has seen rapidly accelerating growth in 2014. Order backlogs contracted from November 2013 to May 2014, but June saw the fastest growth in backlogs since April 2012. The backlog index was 22.9% higher in June 2014 than it was in June 2013. 

This is a positive sign for increasing capacity utilization and capital equipment investment in this industry. Employment is growing at the second fastest rate since December 2011 (only June 2012 was higher). Exports soared in June after a general downward trend since June 2013. Supplier deliveries have been shortening since December 2013. Future business expectations have improved slightly in recent months. Capital spending plans for the next 12 months were above for $2 million for just the third time. Capital spending plans are accelerating at a very rapid rate compared with where they were a year ago.


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