Veterinary economics: 5 things I learned at the AVMA Economic Summit
The American Veterinary Medical Association (AVMA) Economic Summit is an annual gathering of leading experts and bright minds in veterinary economics. My colleague Will and I had the pleasure of attending as keen observers. Our goal: understanding how we could apply expert economic insights towards better client and patient care.
Speakers shared data and interpretations on key economic questions in the veterinary industry.
What is the outlook for the U.S. economy at large? What are the implications for the veterinary industry? What does supply and demand look like for future veterinarians and for veterinary education? What is the market for veterinary services? How might we improve the performance and management of veterinary practices? Will and I absorbed the answers to these and other important questions.
Below are five of the top 10 things I learned at the AVMA Economic Summit
1. The U.S. Economy – why you should be holding off on large investments
According to Dr. Mike Dicks, chief economist at the AVMA, there are two key leading economic indices (LEI) that are strong predictors of U.S. economic expansions and recessions. They are: 1) the U.S. Federal Reserve LEI, and 2) the Conference Board LEI. When you overlap one over the other, they usually track one another more or less, as you can see below:
The grey vertical bars in the chart above represent the two recessions since 2000, and you’ll notice they line up with significant drops in the LEIs. You’ll also notice, however, that the Fed LEI and the Conference Board LEI are diverging in the top right-hand corner, as of about 2015. That’s unusual. So what does it mean?
It likely means that the U.S. economy will continue to grow (good news) but it’s unclear at what rate. The Federal Reserve LEI suggests slower growth while the Conference Board LEI suggests faster growth. Notably, the slower an economy grows below a 2% increase in GDP, the longer the expansion. The faster an economy grows, the sooner a recession. A slow burn is ideal.
According to Dr. Dicks, trends still point to moderate economic growth for the next twelve to eighteen months, i.e., to the end of 2018 or mid 2019. There is evidence to suggest that the current business cycle may be reaching its apex, which is why, in his view, now isn’t a good time to make major capital investments like buying new equipment and buildings. Rather, save your cash and spend it when prices drop, somewhat like saving for a sale.
2. Veterinary prices are increasing much faster than household incomes
According to the Federal Reserve Bank of St. Louis, real median household income in the U.S. is trending upward. Notice, however, that since 1984, it has increased only by an annual 0.34%, up to its current level of $57,230. Take a look:
Meanwhile, veterinary services, according to Dr. Dicks, have increased by 5% per year. This means that, relative to the average household in the U.S., the price of veterinary services has been increasing 14 times faster than the average household income. Click To Tweet In real terms, this means that it has never been more expensive to visit the vet.
3. The consolidators have made their way to the veterinary industry
According to the AVMA, the U.S. is currently home to around 31,000 veterinary practices. More than half of U.S. veterinary practices are one-to-two doctor practices while 20% are part of firms with more than 100 total employees.
There has been a boom in consolidation over the last decade across nearly every industry, so it was only a matter of time until the veterinary industry caught on. Still, its effects on the market are material: 20% of veterinary practices are now responsible for supplying half of the market. Click To Tweet
4. Vets continue to graduate with significant debts
There was much attention paid to the supply and demand of veterinarians and veterinary education, and in particular the financial impact it has on recent graduates. While debt-to-income ratios have decreased from 2.04 to 1.86 from 2015 to 2017, the ratio is still high. With average income per new graduate at $73,626, these graduates are carrying an average of $136,944 in debt upon graduation. Notably, tuition and fees have increased by 14% over the same period.
Although the chart below reflects the distribution of debt-to-income ratios specifically for foreign grads, the trend among all graduates is moving in the same direction. More graduates are moving to the left and right columns of the chart, and the middle is flattening. This means that although many graduates are graduating with less debt relative to their income, almost as many graduates are graduating with significantly more debt.
5. Veterinary students are keen to improve business acumen and financial literacy
Following discussion of high debt loads, financial literacy and business acumen were top of mind. According to a survey conducted by Ori Eizenberg, veterinary economic officer of the Student AVMA (SAVMA), 79% of respondents expressed concern about their ability to repay their student loans.
In turn, Eizenberg covered the demand by veterinary students for business and financial literacy. Just over one-quarter of students reported that learning general business acumen is most impactful each and every year of their training. Almost half reported it would be most impactful in the latter years (third and fourth year).
Most importantly, 88% of survey respondents said they wanted business acumen and financial literacy taught in a face-to-face format.
I mentioned at the top of this post that I’d be sharing five of my top 10 takeaways from the AVMA Economic Summit, which means I still have five must-read insights to go. Keep an eye out for my follow-up AVMA Economic Summit post, coming soon. Until then, how about using your most recent VetSuccess Practice Overview Report to set some realistic goals for the year ahead based on the economic outlook shared here?
Here’s wishing you great success for 2018!
Thank you to the AVMA Economic Summit chairs and organizers, in particular Dr. Mike Dicks, chief economist, Dr. Bridgette Bain, assistant chief economist, Dr. Mike Topper, AVMA president and Dr. Roger Saltman, chair of the Veterinary Economics Strategy Committee, for lending us your time and expertise, as well as the charts and data included in this post.
Thanks also to Ori Eizenberg and Charlotte Hansen of the AVMA, Lynn Dodge of Colorado State University, Terry O’Neil of Katz, Sapper & Miller, Dr. Scott Spaulding of Badger Veterinary Hospitals, Dr. Maureen Kilkenny of the National Center for Food and Agricultural Policy, Dr. Karen Felsted of PantheraT management consulting, and Dr. Travis Meredith of Animalytix, for allowing us to quote you.
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