Some things are more important than others. For example, as a small-business owner, knowing whether you can afford to hire the talented applicant with impressive credentials is more important than knowing the unemployment rate. Likewise, knowing whether your wedding cakes will arrive at your client’s wedding on time is more important than knowing the price of a barrel of oil.
But the economic indicators you hear or read about in the news are still important, though they may not seem to affect your business.
The unemployment rate indicates whether there are too many people looking for work or too few. If there are too many, you can offer that talented job applicant less money because you have more applicants to choose from. If, however, the unemployment rate is high and there are fewer applicants to choose from, you’ll have to offer more.
The price of a barrel of oil certainly won’t affect how quickly your wedding cakes arrive at their destination, but it will affect how much you pay for the gas in your delivery vehicle.
Never miss a local story.
Get it somewhere
It’s imperative you stay abreast of economic news, emerging products and trends in your industry, and changes in government regulations. By staying informed, you’ll know about opportunities for growth, changes in the market, or threats to your business.
In addition, to get in-depth information and analysis, read trade publications and blogs written by industry experts. This will give you a competitive advantage. I’ve talked to small-business owners across the country, and few of them read industry-specific articles.
Get the word out
Companies are looking for environmentally friendly ways to do business, and for good reason: Studies show that companies using environmentally friendly products and processes tend to have healthier workplaces, often qualify for environmental tax breaks and produce less waste. Though each of these is important, the main reason most executives and business owners use green technology and green processes is that they help them make more money.
If your business is going green, don’t keep it a secret. Put it in your marketing. More consumers than ever are buying products and services from companies whose values align with their own, so these consumers will look favorably on your recycling program or your environmentally friendly manufacturing processes.
How’s the economy?
The American economy is enormous, so there are lots of economic indicators that indicate how various segments of it are performing. The Dow Jones Industrial Average is the most popular indicator, and it is important, but the indicators below tend to have more impact on small businesses than the Dow:
Consumer Confidence Index: Measures consumer opinion about the economy. An increase indicates consumers have confidence in the economy and in their own financial health, so they’re more likely to spend. Conversely, a decrease indicates they’re less likely to spend and more likely to save. An upward-trending index suggests you, as a small-business owner, should increase output, and a downward-trending index suggests the opposite.
Consumer Price Index: Measures the change in price for a group of goods and services. The most-accurate indicator of inflation, the CPI gives you an idea what direction interest rates are likely to go. An increase in CPI is usually followed by an increase in interest rates, and a decrease is usually followed by a decrease in interest rates. Though it has been a long time since the Federal Reserve has raised interest rates — and a long time since we’ve seen much inflation — that’s bound to change sometime .
Gross Domestic Product: Measures the market value of goods and services. GDP is an important indicator because it gives you an idea of what’s ahead. A stronger-than-expected increase in GDP means prices are likely to rise, and a weaker-than-expected increase means prices probably will fall. In addition, a weak GDP indicates an economic slowdown, and to remedy slowdowns, the government often lowers interest rates hoping to stimulate the economy.
Producer Price Index: Measures wholesale inflation — how much producers are paying for goods and raw materials. When it rises, you’ll probably raise prices to offset your higher costs. But be careful. If the economy is in an economic slowdown, you should think twice about raising prices because consumers will be looking for lower prices. If you’re forced to raise prices during a slowdown, your profit margins will get squeezed, and you’ll have to find ways to lower costs. Knowing higher prices are on the way, however, gives you time to adjust your business strategy.
Unemployment rate: Measures how many people without jobs are looking for jobs. Instead of memorizing the national unemployment rate, focus instead on your local unemployment rate because this rate may be different — vastly different in some cases — from one city or county to the next.
Voting’s not enough
Politicians at every level and from both parties enact policies they hope will bring economic prosperity to their districts. Regardless of your political views, your business strategy has to mesh with your political environment, so you have to know what that environment is. In other words, you need to know what your elected officials are doing or what those running for office intend to do.
So many outside forces affect your business, so being aware of what’s going on in the community, in the country and in the world helps you devise an effective business strategy. Change will inevitably come, so don’t be caught by surprise. Stay informed and monitor the economic indicators that affect your business. They not only affect the world around you; they affect your bottom line.
Marvin Carolina Jr. is a vice president for JE Dunn Construction. He can be reached at email@example.com.