4 Essential Macroeconomic Indicators Every Entrepreneur Should Monitor

Small business owners often get caught up in the minutiae of day-to-day decision-making. They often neglect to consider the long-term outlook for the economy, which is at least as necessary. You don’t want to make this mistake as an entrepreneur.

Many young people first get a glimpse of how the economy works by learning how the stock market works in the most basic terms.

Running a business (and the overall health of the economy) is sometimes independent of the stock market. However, many of the same principles still apply, and many young entrepreneurs are born there. Yet they forget the underpinnings of economic indicators valued in real-time by the markets.

Around 20 years ago, William O’Neill wrote How to Make Money in Stocks. O’Neill presented a wealth of information on stock market investing, which includes eight significant factors to analyze. The final factor that he discussed focused on economic indicators.

He made a compelling argument that macroeconomic indicators were more important than all the other factors he covered. O’Neill wrote that if an investor got all the other points correct and the economic indicators wrong, they would still be wrong 80% of the time.

Small business owners should follow a similar mindset. Economic indicators play a vital role in the future of your company. You need to make crucial decisions with these variables in mind.

You can have the world’s most innovative social media marketing strategy, the best product, and the most talented employees. Unfortunately, if you fail to gauge the direction of the general economy accurately, then you might make some disastrous decisions that will cement the demise of your business.

There are several economic indicators that every business owner should monitor. Some of them are listed below. You can use companies like Renmac to monitor them.

Business owner optimism

In 2010, Carol Tice, owner of Make a Living Writing, wrote an article for Entrepreneur.com about the most important economic indicator that every business owner should watch. She said that this indicator is business owner confidence.

Case is an entrepreneur rather than an economist, so it might be tempting to take her opinion with a grain of salt. However, I tend to agree with her point, nonetheless. If small business owner optimism is down, then that indicates that businesses are less likely to expand. This means companies need to be more cautious about allocating more of their own capital to expansion.

The rationale behind this is particularly clear from the standpoint of a B2B company. If other companies are less likely to expand, they are less likely to depend on your services or products. You must be careful about making poor investments to reach a shrinking market share.

Unemployment rate

There are plenty of reasons the unemployment rate is significant to analyze. If your target customer base is less likely to be employed, they will obviously be less likely to purchase your products. You need to keep this in mind when ordering inventory and making staffing decisions.

On a positive note, you might have an easier time finding qualified employees desperate for work, so it can be an excellent time to consider replacing some of your lower-performing employees.

Companies with a high elasticity of demand are especially vulnerable. Restaurants must pay close attention to the unemployment rate because they will most likely be hit if it rises. In this situation, they will need to assign fewer people to do payroll and keep less inventory on hand to minimize costs to keep the slow.

Oil prices

In June, American Express published an insightful article on oil prices’ impact on small businesses. Rising oil prices can affect everything from your employer’s commute times to manufacturing costs and consumer demand for your products.

The biggest issue for most businesses is that customers will have less disposable income as oil prices rise, which can put a damper on demand for other nonessential purchases. If employees struggle to afford to commute to work, it might also increase company turnover.

Your business probably can’t do much about declining demand in the face of rising oil prices. However, you can at least try to taper turnover by assuring employees you will temporarily comp them for their commutes if oil prices are too high. This will make them feel less frustrated about paying for gas and less likely to look for work closer to home.

Corporate profits

Corporate profits might not be as crucial to all businesses as other indicators. However, they will be important for businesses with a lot of large companies as customers.

Rising corporate profits indicate an opportunity for expansion within that market segment. They are also a leading indicator that unemployment might drop, which can help them make staffing and purchasing decisions in the intermediate term (perhaps over the next 1 to 3 years).