Business owners wear many hats—and in an increasingly uncertain market, one of those roles is economist. It’s not enough to know the ins and outs of your operation and understand the needs of your customer base and the competitive landscape. To set your firm up for long-term, forward-looking success, you should interpret the economic factors that could impact your business plans.
These are 10 economic indicators midsize business leaders should regularly track to better understand economic conditions and make informed decisions.
1. Gross domestic product (GDP)
GDP measures the total value of all goods and services produced in a country. It’s a leading indicator of broad economic health and can help businesses understand the overall economic environment.
2. Consumer spending
Consumer spending is a crucial driver of economic growth. Tracking trends in consumer spending can help businesses anticipate demand for their products or services.
3. Unemployment rate
Labor market statistics are lagging indicators—the data requires time to gather, calculate and report. A high unemployment rate may indicate a weaker economy, while a low rate could suggest a stronger economy with greater consumer spending.
4. Interest rates
Interest rates set by the Federal Reserve, the central bank of the U.S., can impact borrowing costs for businesses. Changes in interest rates can influence consumer spending, investment decisions and overall economic activity.
5. The Consumer Price Index (CPI)
The CPI, also called the inflation rate, reflects increases in cost of living, or inflation. The U.S. Bureau of Labor Statistics publishes the CPI monthly. Inflation measures the rate at which prices for goods and services rise over time. Businesses need to monitor inflation to adjust their pricing strategies and account for rising costs.
6. Business Confidence Index
This index measures business owners' confidence in the economy based on opinion surveys on future developments. It considers production, orders and stocks of finished goods. A high confidence level can indicate optimism about future economic conditions, which can lead to increased investment and growth.
7. Stock market performance
Stock markets track the values of publicly traded companies, which are just one part of the broader economy. While not a direct economic indicator, the performance of stock markets can reflect investor sentiment and overall economic health. Businesses may track stock market trends to gauge market sentiment.
8. Trade balance
Trade balance measures the difference between a country’s exports and its imports. Changes in the trade balance can impact exchange rates, which can affect businesses engaged in international trade across different currencies.
9. The housing market
Housing market indicators, such as housing starts, home sales and home prices, can provide insights into consumer confidence and spending patterns. Changes in the housing market can directly impact businesses related to construction, real estate, and home improvement.
10. Public policy and regulations
Changes in government policies and regulations—from local ordinances up to international treaties, in some cases—can significantly impact businesses. It's important for business owners to stay informed about potential policy changes that could affect their operations.
By monitoring these economic indicators, midsize business owners can gain valuable insights into the overall economic environment and make informed decisions to navigate challenges and seize opportunities.
Thank you to our friends at J.P. Morgan for providing this valuable information.
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