Medical Care and Electronics

Medical Care Spending Growing Rapidly
From 2011 to 2013, real medical care spending grew at a slightly decelerating rate, but since the passage of Obamacare, such spending has been growing at a rapidly accelerating rate. In the first three months of this year, the month-over-month rate of change grew at the fastest rate since August–October 2002. (This is not a positive for the economy, as the dramatic increase in medical care spending has taken away from almost all other forms of consumer spending.) The dramatic surge in this spending in the first quarter also has resulted in a significant spike in the annual rate of change, which grew at its fastest rate since November 2005. 

Industrial production of medical equipment has been growing at a decelerating rate since June 2013, however, the trend in medical care spending has already started to affect this production. Therefore, it is likely that its rate of growth will bottom out some time this summer. Then production will start to grow at an accelerating rate for the remainder of the year.

While the future should be good for the medical industry, our index indicates that it is still slowing down. The overall medical index has been growing at a generally slower rate since November 2012. New orders slowed down rather dramatically since that date, but appear to have stabilized somewhat in recent months. Production seems to be trending in a similar manner. Even though backlogs have contracted the last five months, they have improved compared to one year ago. This trend in backlogs indicates that capacity utilization and capital spending in the medical industry should reach higher levels in the second half of 2014.