Medical and Automotive/Transportation
Healthcare Spending Up, Medical Production Down
Since the fall of 2013, healthcare spending has been growing at a rapidly accelerating rate. In August 2015, it increased 4.7 percent year over year and was growing at its fastest rate since early 2003. In fact, this rate of growth in healthcare spending was virtually the fastest rate of growth ever. According to the advance gross domestic product (GDP) report from the Bureau of Economic Analysis, healthcare spending accounted for nearly 30 percent of total consumer spending in the third quarter of this year.
Based on the trend in healthcare spending, medical device production should be growing at an accelerating rate, too, but it seems to have gotten out of sync with its historical cyclical pattern. In 2014, medical equipment production should have grown at a decelerating rate. However, I believe the roll out of healthcare through the Affordable Care Act caused medical device manufacturers to increase production in anticipation of higher demand. So instead of decelerating growth in production, there was accelerating growth in production. Now it appears that medical manufacturers are slowing production to bring it back in line with healthcare spending.
In addition to these trends, Gardner Business Media’s medical index shows that new orders and production at medical manufacturers have declined rapidly since March 2015, and because new orders have been relatively weaker than production, backlogs within the industry have collapsed.