I have raised my forecast for United States production of medical supplies and equipment. My new forecast calls for an increase of 6.6 percent in the total output of these products in 2014, and this will be followed by a gain of 7.5 percent in 2015. This forecast is based on a combination of both long-term trends and short-term factors that impact demand for medical products.
As the rate of change chart illustrates (right), the growth rate in the Federal Reserve Board's monthly data series that measures the production of medical supplies and equipment exhibited a consistent cyclical pattern in recent years. Keep in mind that this chart does not show the actual levels of output of medical supplies, but rather the rate at which these levels are expanding or contracting at any given time.
A closer examination of the chart reveals that the growth cycles in this data would usually last in the range of 2 to 3 years. The growth rate would typically peak around 6 percent in the stronger years and the troughs would bottom out around -1 percent in the weaker years. On average, this industry was expanding by about 4 percent a year. This was considerably faster than the growth rate in the overall economy and most other segments of the manufacturing sector during this time.
At the beginning of 2014, it appeared that the data had entered into another deceleration phase in the growth cycle just as it had done several other times in the past few years. The curve looked like it hit a cyclical peak of just over 6 percent in 2013, and the curve was clearly aimed lower in the first quarter of 2014. This does not mean that output levels were contracting at this time. It means that they were growing at an increasingly slower rate. During the first few months of this year, I expected that the cyclical pattern would continue to prevail and the rate of growth in 2014 would be moderately lower than it was in the previous year.
My expectations notwithstanding, production levels started to accelerate in the middle of this year when compared with the same months of a year earlier. In the third quarter, the output of medical supplies escalated by more than 7 percent when compared with the third quarter of 2013. The industry was gaining momentum.
Because of this, I now believe that the cyclical pattern of the past few years will not hold, and we are now entering a new trend of even stronger growth for this industry in the coming year.
There are several reasons for the increased optimism in my forecast.