According to the Wall Street Journal, while most small businesses can easily become bogged down in the day-to-day operations of keeping a company afloat – especially in trying economic times – it is always helpful to keep an eye on the bigger picture. “While the economic recovery is still tentative – and credit remains tights – small business owners could help themselves in 2010 by monitoring the macroeconomic picture.”
In particular, the Journal recommends that small business owners monitor five key economic indicators:
Real Personal Consumption Expenditures “tracks the inflation-adjusted price changes in consumer goods and services.” In layman’s terms, real personal consumption expenditures let the business owner know if anyone out there is spending money and therefore in a position to buy what he/she is selling. As the Wall Street Journal says, “basically, this indicator will shed light on whether consumers are spending and how much.”
Consumer Confidence determines “consumer attitudes towards the economy,” and optimism tends to translate into greater cash flow and sales. “The more confident consumers are about the economy and their own financial pictures, the more likely they are to spend,” says the Journal.
Producer Price Index “measures prices at the producer level, before they get passed on to consumers.” For the small business owner, this indicator sheds light on the real cost of business and potential profit margins. According to Chad Moutray, the Small Business Administration’s chief economist, who was interviewed for the article, “By tracking the price changes within the production pipeline … businesses can anticipate possible inflationary pressures and makes changes accordingly.”
How the U.S. Dollar compares to foreign currency also indicates potential inflation. While a weak dollar can make U.S. products appealing in foreign markets, it can also drive production costs up. “When the greenback falls against other currencies, U.S. exports look more attractive to some foreign buyers. However, within the U.S. it may take more dollars to purchase the same materials – effectively causing producer prices to rise.”
The Unemployment Rate, which measures the percentage of the population out of work, can help business owners track trends and anticipate changes in the way business is done. “Because unemployed workers tend to skip eating breakfast out, morning sales have dampened at many restaurants. However, if the job picture suddenly improves, that could lead to an uptick in demand for breakfast and cause business owners to ramp up production …” says the Journal.
According to Porter, White & Company, a Birmingham-based investment and advisory firm, local economic indicators are not strong in most of the above areas, but at least people are hopeful about where the economy is headed:
“As of September 2009, nothing in the local economy was showing upward movement to indicate a return to normalcy. However, the Bloomberg Alabama Index, the stock index comprised of publicly traded companies with a major presence in our state, rose between August and September 2009. Because stock markets are true leading indicators of economic activity, investors are signaling that they believe a rebound will be forthcoming.”