Medical Device Manufacturing Strength

Saturday, February 21, 2015

Source: Today's Medical​ Developments

As 2014 came to a wrap, President Barack Obama signed into law the Tax Increase Preventions Act (TIPA), which is a House-sponsored and Senate-approved extension on a variety of tax breaks – H.R. 5771 – retroactive for the year and good until Dec. 31, 2014. Included, and specifically beneficial to manufacturers, was the bonus depreciation and Section 179. Bonus depreciation of 50% means that a company can deduct half the cost of new capital purchases in the first year, effectively lowering taxable income, while Section 179 allows small businesses to deduct the entire cost of a small capital purchase immediately.

That’s good news for manufacturers and follows nicely the continued growth in jobs. December saw employers add 252,000 jobs, pushing unemployment down to 5.6%, adding in 2.952 million jobs for 2014 with 17,000 of those hires being in the manufacturing sector.

“Manufacturing is growing faster than the economy in general,” says Pat McGibbon, vice president - strategic analytics with AMT – The Association For Manufacturing Technology.

During the AMT’s IMTSedu Winter Economic Update, McGibbon noted that inventories are up by 15% during the last 40 months, but despite efforts to grow inventory, the backlog continues to grow and is getting to the point where it’s a bit challenging to keep up. That’s actually a good omen because when it takes a little longer to get components, it means there’s more room to expand manufacturing capacity.

“In the midst of this inventory buildup to answer manufacturing needs, we are seeing more foreign direct investment, additional on-shoring in the U.S., Canada, and Mexico, and significant increase in the use of our contract machining base across the country,” McGibbon states.

McGibbon also says that the most recent release of the Institute for Supply Management (ISM) Purchasing Manager’s Index (PMI) shows the number still near 60, as it has been for the past few months, which is another positive indicator for manufacturing. However, he and Eli Lustgarten, senior V.P. at Longbow Securities and a frequent speaker at AMT forecast meetings, feel the area of the PMI composite to watch is the supply chain sector, because that is considered the number which is better able to project growth or contraction down the road.

Med-tech in New York: One state’s take

New York ranks eighth in the country with more than 81,000 jobs in the med-tech industry, which includes more than 25,000 working directly for med-tech companies and more than 55,000 providing supplies, support, and other functions, according to Jessica Crawford, president, MedTech, an organization connecting New York State’s bioscience and med-tech industry through advocacy, education, and collaboration.

Crawford took the time to provide additional insight into New York’s med-tech manufacturing industry after release of “Bio/med breakthroughs: Advancing New York’s innovation economy.”

The med-tech industry plays a critical role in the state’s economic vitality, with upstate New York having specialized concentration in medical devices and equipment – 26% more concentrated relative to the national average, Crawford states, and contributing $20 billion in total economic output. Crawford cites a recent report showing current and emerging strengths within the New York med-tech manufacturing sector include electromedical and electrotherapeutic apparatus, dental equipment, irradiation apparatus, and surgical and medical instrument manufacturing.

While the state is strong and representative of the robust med-tech sector throughout the U.S., the medical device excise tax still looms large.

“The medical device tax threatens more than 1,500 jobs and $357 million in economic impact to New York alone,” Crawford says. “A recent survey by the Medical Device Manufacturers Association (MDMA) found that two-thirds or respondents will soon begin reducing or halting job creation or relocating outside of the U.S. as a direct result of the tax.”

Additional responses showed 47% are already reducing R&D to pay for the tax, and on average, companies plan to cut 18% of their R&D budgets.

While the sector is well poised for growth due to the aging population, Crawford notes that because of continued concerns with the excise tax, policy leaders need to rally around this growing industry so it remains on track. “A solid workforce, aggressive companies, the need to innovate and create cost-effective solutions for health care, as well as public/private partnerships possibilities create a ‘perfect storm’ for enabling growth, and industry groups, such as MedTech, are critical for facilitating this collaboration.”

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