History as a Guide to Recessions

How might a recession impact veterinary medicine?

Editor’s note: As the veterinary industry faces high demand for care and a workforce shortage – trends that could intensify in the coming years – variables from recession to practice efficiency to revenue have implications for business owners, pet owners, and veterinary teams. In a column that originally ran in the Fountain Report, Dr. James Lloyd, a veterinarian, and economist explains how these economic trends could affect the veterinary profession going forward.

 

Economic cycles of growth and recession are long-standing characteristics of the U.S. economy. Since the middle of the 20th century, recessions have occurred on average about once every six years, varying in length – usually about 11 months. However, the Great Recession lasted 18 while the 2020 recession lasted only two.

The impact of a recession on specific sectors of the economy or regions of the country can be variable. Certainly, veterinary medicine exists within the same overall consumer spending and employment environment as the rest of the economy, but it has some unique characteristics.

Several questions arise regarding the potential impacts of a recession on the market for companion animal veterinary services:

 

Q: Will a recession impact the number of clients visiting my practice?

A: Consumer expenditure data from the Bureau of Labor Statistics for the period 1980-2018 were recently analyzed by Xumin Zhang, Lisa House, and Matt Salois at the University of Florida. Not surprisingly, the results of that study indicated the probability of a pet owner purchasing veterinary services was positively correlated with income.

However, the correlation was rather small – for example, the researchers’ regression results indicated that for a household with average income, a 20% decrease in income would be expected to reduce their likelihood of going to the veterinarian by less than 2%.

The data didn’t show a consistent drop in the proportion of pet-owning households spending money on veterinary services during the five recessions that occurred between 1980 and 2018, indicating the drop in spending may actually be a kind of “deferred maintenance” in which clients make up the care they missed in future months.

And the proportion of pet-owning households reporting expenditures on veterinary services clearly increased after 2010 (a compounded rate of +1.7% per year). So based on historic trends, the number of client visits might decrease during a recession, but not likely with the same severity as declines in the rest of the economy.

 

Q: Will a recession impact the amount of money spent by clients visiting my practice?

A:  Results from the University of Florida study indicated mean quarterly expenditures per household for veterinary service users (corrected for inflation) increased at an average compounded rate of +2.9% per year from 1980 through 2018.

Notably, the study didn’t assess the relationship between income and veterinary service expenditure amount statistically. However, in three of the five recessions that occurred during this period (1980, 1981, and 1990), consumer expenditure per household on veterinary services experienced little, if any, economically significant decline.

With the recession of 2001, average annual veterinary service expenditures did decrease, but only by about 1.75% per average household, with full recovery and resumption of robust growth achieved by 2002. Only the Great Recession resulted in average veterinary service expenditures per household declining substantially – about 5.13% – followed by alternating periods of full recovery and declines until 2013 when the long-term trend of increase resumed.

So the number of dollars clients spend might decrease somewhat during a recession, but again, not likely in proportion to declines in the rest of the economy. Once more, perhaps a “deferred maintenance.”

 

Q: Will a recession impact salaries and employment of veterinarians?

A:  AVMA data suggest a “softening” of both starting salaries and average veterinarian incomes in conjunction with the Great Recession, but no impact has been clearly established for previous economic downturns. And remarkably, meaningful unemployment has never been documented in veterinary medicine.

AVMA-published unemployment rates for veterinary medicine have virtually always been lower than the rate for the general economy. In recent years, these rates have consistently been less than 2%, which basically represents just frictional unemployment (those individuals who are voluntarily between jobs).

Together, these data indicate that in veterinary medicine, a recession has been associated with a softening of income and demand for services nationally, but proportionately less than the corresponding decline in the general economy. “Softening” means that many local/regional markets likely experience no impact while some might experience a modest dip.

And for the most part, any recession-associated slowing of growth in demand for companion animal veterinary services has been followed almost directly by a resumption in the nearly 40-year upward trend. In this context, it might be said that veterinary medicine, on the whole, is resilient to recessions but not entirely immune.

Perhaps more noteworthy, however, is the absence of any solid evidence that “regular” economic cycles of expansion and contraction exist in the employment market for veterinarians – even though such cycles are commonly mentioned both in conversation and print. Although softening of salaries has occurred in the past, substantial unemployment per se has never been documented in the labor market for veterinarians.

All the data cited above pertain to the pre-pandemic era. Updating the findings will be important, but it’s worth noting two important factors:

• The data from the Bureau of Labor Statistics covered nearly 40 years and included five different recessions, which provides a robust foundation to learn from.
• Although the pandemic included a substantial (but short) recession, it is widely recognized that demand for veterinary services and employment of veterinarians actually increased significantly through this period.

 

It will be critical to extend the studies and characterize what the post-pandemic “new normal” looks like. In the meantime, claims that we shouldn’t expand the workforce because the risk of recession is increasing are generally unfounded.

The current veterinary workforce shortage is unprecedented in the history of the profession. Aggressive steps are critically needed to preserve the health and well-being of our veterinary teams and to expand access to care for the millions of pets and other animals presently underserved in this country.

 

 

 

 

 

 

About the author

Dr. James Lloyd is CEO and senior consultant at Animal Health Economics LLC, a company he founded in 2019. Prior to that, he was dean for six years of the University of Florida College of Veterinary Medicine. As a leading scholar in economics and veterinary medicine, Jim has authored or coauthored 188 scientific publications and has delivered over 370 scientific presentations and workshops. His academic training includes both a DVM and a Ph.D. in agricultural economics.

 

Photo credit: istockphoto.com/Nuthawut Somsuk