Output of Medical Equipment and Supplies Remains Robust
For the year to date, total U.S. production of medical equipment and supplies is up 8 percent when compared with the same period in 2012. This rate of growth will gradually decelerate for the remainder of 2013, but the annual growth this year will still be a healthy 6 percent. By the end of this year, the actual total output of these products will be 20 percent higher than it was in 2007.
This is one of the few U.S. industries that can claim such robust growth over the past five years. The Great Recession hit most U.S. industries hard, and many of them have yet to climb back to their pre-recession levels. A good example of this that hits close to home is the output of the U.S. plastics products industry. Manufacturers of plastics products have registered solid growth in their production levels during the past two years, but their overall output levels are still 8 percent below where they were in 2007.
The rate of change chart for the medical equipment and supplies industry illustrates that this sector is clearly cyclical, but it does not conform to the typical U.S. business cycle. If the cyclical pattern holds true to form, it indicates that the rate of growth will decelerate through 2014 and will turn back up in 2015. It is too early to predict just how low the rate of change chart will dip next year, but it is highly unlikely that this industry will contract.
The long-term demographic fundamentals that drive demand for medical products will remain quite favorable for the foreseeable future. These include: a growing population, an aging population, and increased access to medical care for low income and uninsured Americans due to the Affordable Care Act. Exports of medical equipment and supplies will also continue to grow as access to these products increases in many of the world’s less-developed countries.
Domestic Production of Consumer Goods Holding Steady
We have lowered our forecast for the U.S. production of consumer goods (excluding high tech, motor vehicles and energy products). Earlier this year we thought that the total output of these goods would expand by 2 percent because we expected that the overall U.S. economy would grow by 2 percent. We still believe that the overall U.S. economy will grow by 2 percent or more this year, but the growth in production of consumer goods will be only 1 percent. But fear not, we expect the growth rate to accelerate in 2014.
Sluggish income growth is the reason that U.S. consumers are not increasing their rate of spending. Households have paid down their credit card debt, and a substantial number of the lucky ones have been able to refinance their home mortgages at rates that are very near historical lows. However, they have not been willing to raise their spending activity back to the pre-recession levels. This lack of final demand has been felt by all segments of the manufacturing sector.
Fortunately, the economic fundamentals that favor increased consumer spending are finally starting to emerge. The labor market is steadily healing, as indicated by an accelerating uptrend in the U.S. employment data. Household income levels are closely related to the trend in the job data, and both of these indicators are starting to rise at a faster rate. The trend in home prices is another important indicator of Americans’ willingness to spend.
The residential housing and construction sectors are well into recovery mode, and this has pushed home prices steadily higher. This will result in higher consumer confidence levels, and it will also encourage banks to be less stingy with financing. All of these factors contribute to increased final demand in the economy, and the consumer goods sector will be among the first to benefit from the increase in spending activity.