You may have noticed fewer items in the headlines section of this blog on financings and even M & A in health care. You almost certainly have seen that the stock market has taken a pretty dramatic tumble since the start of the year and is showing much greater volatility. That uncertainty about equity market performance, which to some extent reflects anxiety about the economy, has definitely decreased the number of venture financings which are being done in health care. It also has squelched the IPO market and probably is affecting M & A activity. Health care is a big part of the economy, and a decrease in available capital means less hiring. You then get a little self-reinforcement of an economic slowdown.
And the economy is definitely slowing. Fourth quarter 2015 GDP was miniscule. Job growth has declined and I think the numbers are funny, likely overstating January growth due to massive seasonal adjustments. Tax withholding numbers can be more accurate and suggest a substantial decline in employment is here. Many other indicators indicate a decrease in economic activity, especially in high-value manufacturing. And the global economy is basically a mess. This slowdown is coming at a time when central banks have kept interest rates so low for so long that they can’t do much now, and hopefully they have learned that their policies were not a long-term solution for economic growth. What those low interest rates did do was create excess government and private debt and create surplus capacity that can’t support the debt.
The “experts” also keep expecting that lower gasoline prices should spur more consumer spending and help the economy. First, those lower gasoline prices, which we all like as consumers, are causing the loss of a lot of very well-paying energy industry jobs. That is having a ripple effect in many communities. Second, if you look at consumer spending, a very significant part of the growth in that number is for health care, and we know why–people have higher deductibles and copays. Consumers are supposedly saving a lot of the gasoline price windfall, but I suspect a lot of that saving is going into HSAs or just regular accounts, to be prepared for health spending consumers know is coming. Health care spending doesn’t have much a multiplier effect. A lot of the jobs that have been created are very low paying–waiters, bartenders, home health aides, health care billing and collection clerks–and a substantial portion of these employees’ income goes to health care expenses. The costs imposed by the reform law don’t exactly encourage employers to create a lot of full-time high paying jobs. So I would expect a worsening economy throughout 2016 and health care is playing its part in creating that slowdown.