The United States economy has weathered a bumpy ride over the last year, and the analytical instrument industry has, too. While demand for workers was high and unemployment dipped low in the US through 2022 and into 2023, inflation remains stuck at its highest rates in decades, and consumers’ wallets are feeling the burn.
But there could be relief ahead. Inflation grew 4% in May, the smallest annual increase in two years. And after the Federal Reserve raised interest rates last month (the tenth time in the last 14 months) to 5.00%–5.25%, it announced a pause in June. However, the reprieve came with a caveat: a majority of the Fed’s interest-rate committee members anticipate needing to raise rates at least twice more before the end of the year. In a press conference on June 14, Fed Chair Jerome Powell indicated that the central bank hopes to use the pause to closely evaluate the situation. These apprehensive moves have created oscillating sentiment in the instrument market, with some executives expecting a downturn and others anticipating growth. Overall, expectations are that the year will end with no substantial change in the market.
As coronavirus-related revenues have dropped off (the US COVID-19 public health emergency officially ended May 11), companies with large life-sciences offerings are coming down off pandemic highs. Thermo Fisher reported a 9% drop in first quarter revenue between 2023 and 2022 and cut several hundred jobs this spring. Illumina’s Q1 earnings dropped 11% year-over-year, and in November, the company announced a cost-cutting plan that included laying off 5% of its global workforce. Danaher’s 2023 Q1 revenues are down 7% from last year, and the company revised down its yearly sales growth forecast partially because of a biotech funding squeeze aggravated by the March collapse of Silicon Valley Bank. (Biopharma funding overall has dipped since 2021.)
Some vendors outside of the life-sciences space have also had rocky recent quarters, including Waters, which reported sales up 3% year-over-year in Q4 2022 (and up 7% overall in 2022) but down 1% in Q1 2023. Despite this lackluster first quarter performance, Waters, along with Thermo Fisher, Illumina, and Danaher all predict their expected yearly earnings to stay on track in 2023. Other companies have posted gains. Agilent’s Q1 revenues are up 5%, and the company reported 11% yearly growth in 2022 with its CEO promising no layoffs in 2023. Companies focused on process analytical instrumentation have also done well; for example, Siemens grew first quarter revenues 10% and had their all-time strongest start to a fiscal year.
And sentiment is improving in the overall US economy. S&P Global’s Purchasing Managers Index (PMI), which tracks the health of services and manufacturing sectors, rose to 54.5 in May, its highest level since April 2022. The labor market remains hot, with the US adding 253,000 jobs in April and reaching its lowest unemployment rate since 1969. (Gains were relatively lean for manufacturing, which added 11,000 jobs, but an improvement from March when the sector lost about 1,000). After stalled growth in quarters 1–3 this year, TDA expects the market for analytical instruments to pick up in Q4 and to be flat for the year.