Health care market a bright spot for plastics suppliers

Schott Pharma AG & Co.

There is never a bad time for an industry to generate some new ideas, some fresh thinking or some innovative approaches. After all, there are always problems to solve.

And maybe I am a little biased, but it just seems to me that the U.S. manufacturing sector — and in particular the plastics industry — could use some fresh ideas and innovations right about now.

The triennial NPE always delivers some fresh ideas to the market. The fact that it has been six years, or I should say six extraordinary years, since the last NPE convened, means we are all more eager than ever to learn what's new. So the timing of the event this year feels auspicious.

For that reason, I wanted to come up with a suitably auspicious topic to write about for this column. Unfortunately, most of the U.S. manufacturing sector and the bulk of the plastics industry are in the doldrums at the present time.

The current interest rate environment in the U.S. remains restrictive to those industry segments that are susceptible to higher costs for financing. And since the pandemic ended, there has also been an unfavorable shift away from goods and into services in household spending patterns. This double whammy has resulted in trends in overall manufacturing as well as the overall output of plastic products, which are best described as flat-to-down. As of the second quarter of 2024, these lackluster trends have persisted for more than a year.

But there is one market segment that is thriving, and that is medical equipment and supplies. As I said, Americans have significantly increased the amount of money they are spending on services, and one category of the services sector that is experiencing the strongest growth is health care. Not surprisingly, this increased spending on health care has raised demand for medical supplies.

In the three-year span since the pandemic year of 2020, total U.S. output of medical equipment and supplies has enjoyed an average annual growth rate of almost 5 percent per year. Total output of these products hit an all-time high in the fourth quarter of last year, and the graph looks poised to make a run at another record high this year.

Just to be clear, this industrial production data measures equipment and supplies made from all types of materials, not just plastic. But rest assured that plastic materials are quite prevalent in the medical industry, and that is not likely to change anytime soon. In fact, I expect plastics to become even more prevalent given the recent historical trends.

The trend in the data on this chart is corroborated by the trend in the consumer spending data for health care services. In the three years since the pandemic, inflation-adjusted personal consumption expenditures for health care have increased by about 5 percent per year. That is just about the same annual growth rate we see in the output of medical products during that time.

So, despite rising interest rates and higher-than-normal levels of inflation, this sector of the U.S. economy has registered real growth of about 5 percent per year. And it's hitting that level of growth despite the fact that the pandemic is long past. Now that's auspicious. And based on the trends in the recent data, I expect the sturdy growth to continue. Spending for medical goods and services has always been a priority for American households, and that commitment has strengthened in the past few years.

The current robust trends in U.S. health care consumption notwithstanding, there are always risks to the outlook that must be managed. I will mention a couple of them — one of them is more immediate and one is longer term.

If you have not heard about the situation with UnitedHealth already, then you will no doubt be made aware of it very soon. This company — or more specifically, a subsidiary of this company called Change Healthcare — was the victim of a recent cyberattack.

As a result of this attack, a huge swath of doctors, pharmacies and hospitals were unable to conduct their business at anywhere near normal levels. It is estimated that Change Healthcare processes about half of all Americans' health claims. This is a huge company. And Congress is now concerned that it has become too big.

This company is so large, I doubt if there are any manufacturers of plastic medical supplies and parts that do not do business with UnitedHealth or one of its subsidiaries. The company was able to grow to the current size because of the insatiable demand for their services, but when companies become "too big to fail," the systemic risks become magnified. Any disruptions to a such company might be catastrophic for smaller companies in the supply chain.

The longer-term risk to my outlook comes from the question, "Why do we need so much health care anyway?" The U.S. outspends all other countries on health care by a vast amount, but according to my cursory Google search, we rank only 47th on the list of life expectancy.

As an economist, I have always believed that healthy people spend less on health care products and services, not more. Personally, I would much rather spend my money on other types of goods and services rather than health care products, and I make lifestyle choices based on this preference.

Here again, I might be biased, so maybe an outbreak of healthier lifestyle choices is not a real risk to the outlook after all. I will leave that for you to decide.

* source : https://www.plasticsnews.com/news/health-care-market-bright-spot-plastics-suppliers