Consumer Goods and Medical

Consumer goods production should grow, while medical equipment production continues to slow.

Consumer Goods Production Should Grow, Leading to Increased Demand for Molds
Real disposable income in June was $12,176 billion (seasonally adjusted at an annual rate), growth of 3.0 percent compared with one year earlier. This was an all-time high for real disposable income, but it was the slowest rate of month-over-month growth in incomes since September 2014. This also was the first month of below-average income growth since September 2014. Disposable income has been growing at an accelerating rate since June 2014. The annual rate of change ticked up to 3.2 percent in June.

As a result of the accelerating growth in disposable income, real consumer goods spending has grown at an accelerating rate for most of the last three years as well. Recently, the rate of growth has flattened at a rate just below the fastest rate of growth over the past eight years or so. 

Despite the accelerating growth in consumer goods spending, consumer goods production has experienced decelerating growth for most of the last year. While the rate of growth has slowed, it is still fairly strong compared with the last 15 years. Consumer goods production should grow faster in upcoming months based on the trends in incomes and consumer goods spending.

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Medical Equipment Production Continues to Slow in 2015
Real medical care spending has been on a tear for nearly two years, and the annual rate of growth has accelerated very rapidly. The current rate of growth is the fastest in more than 30 years except for a brief period in 2002. So much for Affordable Care Act lowering overall spending on health care in the U.S. 

Despite the very strong growth in health care spending, medical equipment production has grown at a slower rate this year. Some of this slower growth could be the result of production growing too fast and too soon relative to growth in spending. So perhaps medical equipment production is just self-correcting a little before it returns to accelerating growth in response to health care spending.

Our own business index, however, shows that the medical industry peaked in June 2014. The index showed generally slower growth from June 2014 to May 2015, and since May, the medical index has contracted. New orders have contracted for three straight months. Production increased in August, but the general trend in the production index is down. Hiring has slowed noticeably. Perhaps the most significant reason for the decline in the overall index is the trend in exports. This subindex has dropped sharply as a result of the extremely rapid increase in the value of the dollar since August 2014. Finally, future business expectations have generally trended lower in 2015.

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