Medical Market Is Trending Up
A medical manufacturing expansion in the works.
Gardner Intelligence predicts 2018 will be a strong year for medical manufacturing, based upon data supplied by medical-goods manufacturers of the Gardner Business Index. Since the second quarter of 2017, our data indicates that new orders growth continues to outpace production. These two index components were the primary drivers of the Business Index among medical devices and equipment manufacturers in 2017. And as 2018 unfolds, they appear set to repeat this accomplishment. Gardner Intelligence is a division of Gardner Business Media, publishers of Plastics Technology and other business-to-business magazines.
As the medical industry began experiencing multiple months of new-orders growth in excess of production during 2017, the index readings for supplier deliveries should have increased as manufacturers increased their consumption of inputs in order to meet the demands of the medical industry. However, our data indicate that this was not the case, as 2017 readings for supplier deliveries did not significantly change in response to growing new orders.
If our interpretation of the data is accurate, then unresponsive supplier deliveries figures from 017 to the present have in part hindered production from being able to fully respond to increased new-orders growth, leaving open the production and new-orders gap. As would be expected—and as the data confirm—backlog readings taken during 2017 changed drastically, from registering contraction in the first quarter of the year to setting multi-year highs by the fourth quarter of 2017.
Gardner is projecting ongoing strength for the medical manufacturing industry in 2018 as it continues to find ways to meet growing demand. This may be accomplished as links in the supply chain are improved and/or as manufacturers increase their capacity through increased capital spending. According to Gardner’s data measuring expected capital spending over the next 12 months, medical manufacturers during the three-month period ending January 2018 indicated an approximately 40% increase in planned capital-equipment purchases compared with the expected spending data from the same months a year ago. New capital-equipment investments may help the industry more aptly respond to changes in new orders; however, this is not likely to be a proper nor full substitute for the seeming bottleneck that has been created by unresponsive supplier deliveries.
This positive view of the industry is also supported by Wall Street analysts covering medical devices, instruments and supplies. Based upon 56 publicly traded, U.S.-listed firms with revenue forecasts for 2018, analysts expect revenue growth of 11.9% this year and earnings margins to increase from an actual median level of 13.5% in Q3 2017 to 16.1% in Q32018 and over 17% in 2019.
ABOUT THE AUTHOR: Michael Guckes is the chief economist for Gardner Business Intelligence, a division of Gardner Business Media (Cincinnati, OH US). He has performed economic analysis, modeling and forecasting work for nearly 20 years among a wide range of industries. Michael received his BA in political science and economics from Kenyon College and his MBA from The Ohio State University. email@example.com
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