April “Employment Situation” Report Mixed on Healthcare Hours. A Flu Effect?
The Bureau of Labor Statistics on Friday published the April 2012 Employment Situation report, which includes payrolls and hours worked at the industry level through March 2012. While aggregate healthcare hours, and medical / surgical hospital hours were slightly up in March as compared to February, and had sequential improvement in y/y growth, physician office hours demonstrated some weakness. Aggregate physician office hours were down slightly from February, but of more concern (since the data series isn’t seasonally adjusted) is that y/y growth fell 60 bps to 4.4% in March (from 5.0% in February). It is worth noting that the 2011-2012 flu season has been particularly mild – hospital companies reporting 1Q12 results have pointed to a 1.5-2.0% drag on y/y admissions growth. We would suspect – though can’t definitively prove – that the weak 1Q12 flu season weighs on the aggregate hours worked comparison
We continue to believe that the bulk of aggregate healthcare hours data demonstrates: 1) that demand for healthcare is cyclical; and, 2) that demand is improving from a recent cyclical trough. However, we also must acknowledge that physician office hours have lost some momentum in the last several months. More volume-sensitive healthcare sub-sectors (e.g. hospitals, non-Rx consumables) continue to carry valuations that reflect an expectation of forward demand that is as weak or nearly as weak as trailing demand. Since the sequential weakness in the physician office hours has not carried over into hospitals and hospital hours have remained strong in spite of the flu season’s drag on admission growth, we believe signs continue to point to a cyclical healthcare demand recovery, and still recommend overweight positions in these subsectors
For more detail, please see our recent full-length research notes: “US Healthcare Demand Slow for Cyclical (i.e. Temporary) Reasons …” January 12, 2012; “The Pro-Cyclical Healthcare Thesis …” February 6, 2012; and “Accelerating Growth in Hospitals’, Physicians’ Offices and Other Care Settings’ Labor Hours Signals Improving Healthcare Demand”, March 12, 2012