Slower Growth Ahead for Medical Device Production
Medical care spending continues to be ever-increasing. Although the rate of growth had fallen sharply in 2013, most likely as a result of some consumers taking a wait-and-see approach due to forthcoming Affordable Care Act (ACA) legislation, health care spending grew at an accelerating rate throughout 2014. This acceleration in spending was much more subdued than the rapid increases that occurred in late 2010/early 2011 and the second half of 2012, however. Based on the recent trend, it appears that there will be decelerating growth in medical care spending in 2015.
Medical care spending is an excellent leading indicator of medical device production. Spending tends to lead production by six to 12 months, based on the chart shown on the right. While the correlation between spending and production held, it does seem that medical equipment production grew at a faster rate than it should have in 2013 in anticipation of the ACA. Then production seemed to miss its every-two-year cycle of significant swings in its rate of growth, and it has stayed at an elevated rate of growth for nearly two years, which is relatively uncommon. Therefore, with spending looking like it is ready to grow at a slower rate, it seems likely that medical equipment production will grow at a much slower rate in 2015. The current rate of annual growth in production is about 6 percent, but if past correlations hold, it’s possible that production might grow at 0-2 percent this year.
Packaging to See Stable Growth in 2015
With the release of November 2014 data, real disposable income increased 2.9 percent compared to the previous November. This was the fastest rate of month-over-month growth in disposable income since the artificially inflated months of November and December 2012. The annual rate of change, now 1.8 percent, grew at a faster rate every month in 2014. This is the fastest rate of annual growth in disposable income since May 2013.
Real disposable income is a good leading indicator of real consumer goods spending. While incomes have been growing faster, consumer goods spending has been growing at a relatively constant rate. This is because consumer goods spending did not slow down at all, even though incomes grew at much slower rates in 2013 and 2014. Therefore, even as incomes continue to increase, it is likely that spending growth will remain relatively flat.
Changes in spending tend to lead changes in consumer goods production (and consequently packaging) by three to six months. Consumer goods production has seen accelerating growth since 2011, however the rate of growth in production has virtually caught up to the rate of growth in production. Therefore, it seems likely that growth rates in consumer goods production and packaging are going to moderate in 2015.