Modern Machine Shop ad
Published

Slower Growth for Medical Devices

MARKET WATCH

Lower projected spending on healthcare in 2015 is the reason.

Share

Medical-care spending, as reported by the Bureau of Economic Analysis, was subjected to large revisions throughout 2014 as the government struggled to estimate the impact of the Affordable Care Act (ACA) on the medical industry. First-quarter data originally projected healthcare spending making a major contribution to GDP. Then it was revised downward, virtually eliminating any positive impact of healthcare spending on GDP in Q1. Yet by the end of 2014, the trend in medical-care spending was virtually unchanged from what it has been for the last 15 years.

Medical-care spending continues to increase. The rate of growth had fallen sharply in 2013, most likely as a result of consumers taking a wait-and-see approach on spending due to the pending ACA. Then, throughout 2014, healthcare spending grew at an accelerating pace. However, the acceleration in spending was much more subdued than in late 2010/early 2011 and the second half of 2012. Based on the recent trend, it appears that there will be decelerating growth in medical-care spending in 2015.

Medical-care spending is a leading indicator of medical equipment/device production. Spending tends to lead production by six to 12 months (see chart). While the correlation between spending and production held, it seems 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-other-year cycle of significant swings in its rate of growth. So, medical-device production has stayed at an elevated rate of growth for nearly two years, which is relatively uncommon. Therefore, with spending looking like it’s ready to grow at a slower rate in 2015, it’s likely that medical-device production will follow. The current rate of annual growth in production is about 6%. But, if past correlations hold, then it’s possible that production might grow at 0-2% in 2015.

Gardner’s business index indicates that the medical industry has struggled in recent months. Since August, the overall index has dropped from 59 to 40.9 in December (above 50 is expansion; below 50 is contraction). While it appears that the medical industry typically suffers a seasonal swoon in the fourth quarter, this recent drop is larger in magnitude than in previous years.

In particular, new orders have fallen off a cliff, contracting significantly in the last four months. Yet, while the production index has fallen since June, it is still above 50. Because new orders have collapsed with production continuing to grow, backlogs at medical OEMs have contracted significantly since Q4 2014. The rate of contraction is much more severe than at any other time since our index started in December 2011. And exports have contracted in the last two months. Because of the rapid decline in backlogs, supplier deliveries have shortened noticeably as well. 

Despite all of this, future business expectations generally rose in the fourth quarter.

NTMA
IMTS+
MMS Online Apr-2021
NTMA
Become a NTMA member today!
chemical foaming agents for molding and extrusion
Resinworks with Optimizer
Register Now!
Best of the Best
New 2024 Twin Screw Report
Elevate your PET sorting
Glycon's DM2: The High Performance Feedscrew

Related Content

Medical

Catheter Specialist Finds Sweet Spot Serving Small, Medium-Sized Concerns

Medical-component specialist LightningCath has carved a niche meeting the needs of small to medium-sized entrepreneurs with complex catheter designs … quickly.

Read More

Krones Acquires Netstal

Krones adds PET preform injection molding to its bottle blowing and filling capabilities, as well as cap molding and expansion into medical, food and other markets.

Read More
Medical

Consistent Shots for Consistent Shots

An integral supplier in the effort to fast-track COVID-19 vaccine deployment, Retractable Technologies turned to Arburg and its PressurePilot technology to help deliver more than 500 million syringes during the pandemic.

Read More
Automation

What to Look for in High-Speed Automation for Pipette Production

Automation is a must-have for molders of pipettes. Make sure your supplier provides assurances of throughput and output, manpower utilization, floor space consumption and payback period.    

Read More

Read Next

sustainability

Lead the Conversation, Change the Conversation

Coverage of single-use plastics can be both misleading and demoralizing. Here are 10 tips for changing the perception of the plastics industry at your company and in your community.

Read More
Automation

People 4.0 – How to Get Buy-In from Your Staff for Industry 4.0 Systems

Implementing a production monitoring system as the foundation of a ‘smart factory’ is about integrating people with new technology as much as it is about integrating machines and computers. Here are tips from a company that has gone through the process.

Read More
NPE

For PLASTICS' CEO Seaholm, NPE to Shine Light on Sustainability Successes

With advocacy, communication and sustainability as three main pillars, Seaholm leads a trade association to NPE that ‘is more active today than we have ever been.’    

Read More
NTMA