Medical and Consumer Products

Article From: MoldMaking Technology, , from Gardner Business Media

Posted on: 2/1/2014

Medical Equipment Production to Grow in 2014; Moderate Growth for Consumer Goods

Medical Equipment Production to Grow in 2014
Since 1966, real healthcare spending in the U.S. has risen on a straight line. The annual rate of change has not contracted in a single month during that time. Also, medical equipment industrial production has rarely contracted since 1972. When it did, the contraction was extremely shallow and very short. According to our own data, capacity utilization in the medical industry did not fall at all even during the severe 2009 recession.

Medical equipment production tends to lag healthcare spending by about one year. In 2013, medical equipment production grew faster than at any time since 2006. Although the rate of growth in production should slow in 2014, it should remain relatively strong throughout the year.

Our index corroborates the strength of this industry. Since December 2011, it has grown at a significant rate in every month except four. New orders have grown in all but two of those months, although that rate of growth was noticeably slower in 2013. 

Backlogs contracted for much of the year. This indicates that capacity utilization, which is the leading indicator of capital equipment spending, will fall slightly in 2014. Capacity utilization leads capital equipment spending by about one year. While capital investment in the medical industry looks to be strong in 2014, it will likely slow down in 2015, if not in the latter part of this year.

You can see all of our data on the medical market, including a business index for the medical industry, at gardnerweb.com/forecast/medical.htm.

Moderate Growth for Consumer Goods in 2014
To understand what will happen with consumer goods production, we start with real disposable income. The month-over-month rate of growth of 0.6 percent in November was the slowest in real disposable income since February 2013. However, this rate of growth is artificially low because of tax law changes that artificially boosted income in November 2012 and caused the annual rate of change to drop to its lowest level since October 2012. Without the effects of this tax law change, real disposable income has been growing at a constant rate since April 2012.

Consumer spending in November was 2.6 percent more than it was in November 2012. This was the fastest rate of month-over-month growth since July 2011, despite stagnant growth in incomes. Spending growth, however, is still running quite a bit below normal. The annual rate of change remained at 2.0 percent for the sixth time in seven months. With annual growth in incomes relatively flat, accelerating growth in consumer spending is being fueled by additional debt. Incomes need to grow faster to make the accelerating growth in consumer spending sustainable. Changes in consumer spending tend to lead changes in consumer goods production by about three months, on average. Since late 2011, consumer spending has been growing at a slower rate, while production has been growing at a faster rate. It seems likely that the rate of growth in production will start to grow slower early in the first or second quarter of this year.

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