Economic indicators can be frustrating to watch because today’s news often contradicts yesterday’s report. Nevertheless, the economy is probably one of the biggest influences on your business.
Movements and shifts in the economy affect consumer purchasing power and spending patterns. The state of the United States and world economies can be either an opportunity or a threat for any business, depending on whether your company improves and declines with the economy (real estate) or whether the opposite happens (price of gold).
Many economic indicators affect businesses. These areas may not be of the utmost importance for every business, but consider the following list of common economic indicators:
Overall economic growth or industry growth
Interest rates
Government spending
Changes in employment policies and minimum wage
Housing costs
Exchange rates, which impact demand from overseas customers
Availability of capital
Consumer confidence
Average hourly earnings
Personal consumption expenditures
Even outside trends tend to impact economic indicators. Some of these areas are out of your control and are likely to be huge factors over the next ten years. Check and see whether you can identify any opportunities or threats for your business in the following list:
Aging population: Percentage of people over the age of 65 will grow in the United States from 13 percent in 2010 to 16 percent in 2020, but the aging megatrend affects all regions of the world — older people tend to be less prone to change.
Globalization: We’re rapidly growing in global interconnectedness. Global trade boundaries are quickly evaporating and opening opportunities for goods, services, people, information, technology, fashion, and culture, amongst many others.
Technology: Faster, better, and increasingly more virtual, embedded technologies create data and consumer information at a rate that businesses are required to adapt to with strategic spontaneity in meeting growing demand.
Increasing price of oil: The general consensus is that the era of cheap oil is probably over.
Shrinking middle class: Rich people are getting richer; the number of people in the middle class is shrinking, and the lower class is growing and getting poorer. The result: A larger gap between rich and poor.
Increasing natural disasters: The possibility of more natural disasters is a growing concern. These occurrences not only take a human toll but also upset local and national economies.
A company that provides contract labor to the construction industry forecasts its business based on a leading economic indicator: housing starts. Over the years, the company has refined its planning process to begin making decisions based on changes in this economic indicator with a six months lead time.
In other words, when the indicator significantly changed, the company knew it had six months before the impact of that shift would be felt. The company’s actions included proactive increase or reduction in workforce.
An appliance services company relies on the economic indicator of durable goods manufacturing to forecast business. As in the preceding example, the company refined its planning and forecasting to understand it had ten months from the indicator change to business impact.