Healthcare industry being counter-cyclical
Hi all,
I have heard and read now several times that the healthcare industry is counter-cyclical and thus a good investment during economic downturns.
Supposably more jobs are added to the indstry in downturns as many vacancies are available and laid-off workforce would turn to those. However this does not explain a revenue-based growth in the industry. Is it perhaps government increases spending into healtcare as it does in construction a la Keynes?
Could anyone shed some light why the industry grows in a recession, or am I missunderstanding counter-cyclicality being not indicated by growth but stagnation?
Here some info about the issue: "Health care services are the most counter-cyclical, gaining jobs rapidly during an economic downturn. This is likely due to the nature of this industry; health care is unaffected by recession because consumers see it as a necessity rather than something that can be used less often depending on the economy. Moreover, because much of U.S. health care costs are supplemented by Medicare, Medicaid, and private insurance, this funding is not susceptible to competition with other types of purchases, and the benefits continue to be available to Americans during times of recession and unemployment.
The health care industry is one that is truly counter-cyclical; however, there is no strong consensus as to why this is. There is some evidence that health actually improves during economic recessions in the reduced use of tobacco and through improvements in diet an exercise. Thus, the demand for health care is unlikely to be driving the growth of this industry. Rather, some experts believe that the health care industry benefits from higher unemployment rates during a recession, because more people are likely to pursue jobs in the health care industry when unemployment is high. Because this industry tends to have many job vacancies, a recession may create a higher supply of employees to fill these jobs"
Would be great to hear a few opinions.
Cheers from London PM
I'm pretty sure healthcare is defensive and not counter cyclical. Look at the data.
The article you have seems to be talking only about unemployment
The HC counter cyclicality argument is pretty overblown IMO (or at the very least is company specific). The argument for that case is pretty clear cut -- a lot of healthcare spending is non-discretionary and people have insurance (or some do), and therefore demand for HC products and services is less cyclical than some industries. That's true in most cases, although if the economy gets bad enough, people lose their jobs and avoid going to the hospital for anything that is not an emergency. A lot of HC companies that thought they were immune to downturns found out that is not the case during this last major down draft that we had. Lotta stocks got drubbed when companies started to miss earnings.
I've never heard that HC employment goes up during a recession. That doesn't make any sense to me. And in fact if you look at healthcare staffing employers such as AHS and CCRN, you will see that that is patently false. There is a structural shortage of both nurses and doctors (with trends pointing toward an exacerbation of that situation in coming decades), but I would hardly say these are easy jobs to get into for the average unemployed. In fact, it's hard to think of any meaningful HC job that you can just waltz into.
To the extent that there is growth in the industry, it is driven by non-cyclical companies that have structurally embedded growth on favorable demographic trends, possible pricing (although most is negative-ish these days), and/or population growth. Companies with unique, in demand products would fit this description.
The question is pretty big and I'm sure lots of counter arguments for particular points exist, but in general I think you are pretty confused and should take a step back and try to think it out logically about whether what you are saying makes any sense or not.
Edit: defensive is a good way to describe it.
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