Consumer Goods Production Likely to Grow Slower
Real disposable income was at an all-time high of $12,705 billion dollars in July (seasonally adjusted at an annual rate), having grown 2.7 percent compared with one year earlier. The month-over-month rate of growth was below 3.0 percent in four of the previous five months, and the annual rate of growth has decelerated steadily since August 2015. In July, that annual rate of growth, now 3.0 percent, was the slowest since November 2014. It was also the second month in a row that the annual rate of growth was below the historic average.
As a result, real consumer goods spending has grown at a decelerating rate since July 2015. Given the trend in incomes, it is likely that consumer spending growth will continue to slow throughout 2016.
As growth in consumer goods spending has decelerated, consumer goods production has followed suit. The current rate of growth in consumer goods production is virtually identical to what it was from January 2014 to April 2015. It seems likely that the trends in income and consumer goods spending will lead consumer goods production to grow even slower in the upcoming months. We should expect the rate of growth to be the slowest since the last recession.
Medical Production Growing Significantly
Since 2014, the growth rate in real medical care spending has skyrocketed. The peak rate last November was the second fastest rate of growth in medical care spending in the last 40 years. Of course, this incredible growth coincided with the rollout of the Affordable Care Act. Growth that fast isn’t sustainable, especially as families realize how expensive health care remains despite the ACA.
However, the rapidly accelerating growth in medical care spending from 2014 through 2015 has translated into rapidly accelerating growth in medical equipment production in 2016. Given the historical relationship between medical spending and production, we should expect the accelerating growth in equipment production to continue throughout this year.
Also, Gardner Business Media’s medical business index shows that medical device manufacturers generally have experienced better business conditions since September 2015. In fact, the index grew in three of the last five months. The new orders, production and backlog indices have shown significant improvement since last September.