For business owners and executives (and investors), being able to understand the economy’s “health” and direction can help guide business and investment decisions. Economic indicators aren’t perfect crystal balls, but they’re certainly better than winging it. At Golden Hills Financial Group, we use a variety of economic indicators to help guide some of our business decisions. The fun and challenging component of economic indicators is that you need to determine what works for you, your industry, and your business. The reality is every business is unique and there is no cookie-cutter economic indicator “dashboard” that will perfectly apply to all businesses. While it can be daunting to sift through the myriad of available indicators, there is no need to worry as there are some “popular” indicators that many executives use to guide their business decisions.
A study by the Financial Executives Research Foundation titled Economic Indicators and Their Impact on Business Decisions has identified the four most widely followed indicators by senior-level executives: inflation, unemployment, oil prices, and GDP (Gross Domestic Product). The chart below reveals more than 15 indicators and the percent of senior executives who rely on each to help guide their decisions.
Given the global nature of business, it is important to take into consideration both national and global economic indicators. According to the above study, executives often have international indicators which they reference. The top four are: short-term interest rates, long-term interest rates, bilateral exchange rates, and foreign stock market indices. Below is a graph from the study which sums up these international/global indicators.
Where can you find current economic indicator data? If you’d like to obtain the latest figures on a variety of indicators, FRED (Federal Reserve Economic Data, St. Louis) is an excellent source. To find data regarding the four most cited indicators by executives, visit the links below. Because there is no indicator titled, for example, “Inflation”, we have identified a common indicator of inflation (as noted below). We have done this for a few of the others as well.
1) Inflation (let’s use Consumer Price Index for All Urban Consumers: All Items)
2) Unemployment (let’s use Civilian Unemployment Rate)
3) Oil Prices (let’s use Spot Oil Price: West Texas Intermediate)
4) GDP
Note: When viewing indicator data, it is important that you view trends. FRED has great graphs that typically include plenty of historic data that allows you to pick out trends in the data.
We hope you can leverage some of the great economic data available to the public and use it to make better business decisions. While no data is perfect we feel it is important to take into consideration a variety of indicators as well as other business tools and data as part of your decision making process.
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