Economic cycles impact all the sectors of the economy inclusive of the health care. During periods of economic progress, the healthcare industry improves significantly. On the other hand, economic downturn often results in service reductions and budget cuts in the healthcare sector and hence hiring freezes and layoffs. Moreover, significant segments of healthcare industry such as nursing labor market are destabilized leading to adverse outcomes like severe shortages which often extend beyond the recessionary period. Health insurance is also another segment of the healthcare industry that is affected by an economy of the country. In the United States, for example, many Americans receive health coverage from their employers. Therefore, when unemployment is high, many individuals go without health coverage, and the amount of money spent on health products reduces considerably (Ameritrade, 2017). This paper explores the performance of healthcare industry in the United States in 2016 and 2017. The article culminates by providing a performance forecast for this sector in 2018.
The 2016 -2017 Performance
In 2016, the healthcare industry in the United States performed poorly compared to the previous years. It was the year when the drug patents began to roll off, and scrutiny on drug prices increased. As a result, many pharmaceutical firms struggled, and there was a drop in earnings and revenues. The overall sector is said to have declined by 7.1% (Ameritrade, 2017).
Despite the dreary results in 2016, the healthcare industry seems to be making a return in 2017. The balance sheets of the healthcare companies are solid, their respective stocks are offering good dividend yields, and the general cost structures have improved significantly. For instance, the 61 shares in the category of Standard & Poor's 500 healthcare industries which incorporate insurers, hospitals, medical device makers, biotechs and drug makers have increased by 8.9% in 2017 (Shell, 2017). Furthermore, the demand for healthcare services and products is on the rise. This situation is partly attributed to strong employment and an increase in the aging population. The robust growth of this sector in 2017 is also depicted by P/E ratio improvement. The P/E ratio for 2017 is 43.71 compared to 38.78 of 2016. The data from figure one below shows that the various segments of the healthcare sector of the United States have gained in 2017. It is the only Health Care Services segment which is experiencing a decline (Yardeni, Abbott, & Quintana, 2017).
Figure 1: Retrieved from Yardeni Research, Inc
The robust growth in the healthcare sector experienced in 2017 is expected to continue in 2018 due to various reasons. Foremost, the demand for healthcare services is on the rise. The increasing aging population is an indication that the demand for extensive medical care and drug treatment will be high. The increase in issues resulting from obesity will also enhance the demand for medical services (Ameritrade, 2017). Growth in employment creation is also expected to amplify for healthcare services like insurance cover. Besides, strong financials in this sector will improve the chances of high dividends payments, mergers, and acquisitions. However, any alteration in Affordable care and drug pricing controls is likely to result in sways in the healthcare stocks. Fluctuations in exchange rates as well as generic and biosimilar competition will also play a critical role in determining the growth of this sector.
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Yardeni, E., Abbott, J., & Quintana, M. (2017, August 21st). Performance 2017 S&P 500 Sectors & Industries. Retrieved August 22nd, 2017, from yardeni.com: