Think back to when you started your business and perhaps worked out a business plan. It’s likely that many things have changed since then. New work arrangements, new technology, new consumer buying habits, and more. To prepare for economic changes, it’s important for you to monitor trends so that you can stay ahead of the curve. Here are some trending areas to monitor and where to look for projections.
Consumer buying habits have changed as a result of the pandemic, with online buying, curbside pickup, and contactless payments coming to the fore. How does this translate into whether consumers will be spending more (or less) money? It’s vital to monitor consumer confidence. The reason: purchasing is tied inextricably to consumer confidence.
As businesses begin to recover from the effects of the pandemic, businesses may be hiring again. Workplace arrangements may be different, with more employees continuing to work remotely and with flexible hours. But will companies need the same or more (or fewer) employees than before COVID-19? Deloitte has suggested that the unemployment rate could decline to pre-COVID-19 levels beginning with the fourth quarter of 2020 (the rate for September 2020 declined to 7.9% from its peak of 14.7% in April of this year).
Alternatively, will the number of people in the gig economy continue (or shrink or grow)? Again, this is a trend worth monitoring.
What interest rate can you expect to pay on your line of credit, credit card debt, and other borrowing in the future? The Federal Reserve’s Fed Funds Rate (the rate that banks borrow from each other overnight) is currently at zero. This is the rate that other borrowing is essentially pegged at. Fed Chairman Powell has indicated that the Fed Funds Rate is likely to remain at zero for the next year or more.
Where to look: Monitor the Fed Funds Rate from the Federal Reserve.
Other leading economic indicators
The categories covered above are only a few of the indices you can monitor for detecting economic change. Others include:
- Composite leading indicator (CLI). It is designed to provide early signals of turning points in business cycles showing fluctuation of the economic activity around its long-term potential level.
- Stock market. Stock prices reflect what investors anticipate to be companies’ earnings. If stock prices drop, it may show that investors are anticipating a recession (significant or modest).
- Inventory levels. The amount of goods on hand is taken to indicate consumer demand. If levels are low, consumers are buying. But high inventories could also indicate that businesses are anticipating increased consumer demand.
- Housing market. Housing prices, building permits, and home sales all help to indicate a healthy (or sick) economy.
- Manufacturing activity. Production, shipping, prices, and materials are factored into a measure of manufacturing. The Federal Reserve Bank of Kansas City publishes a manufacturing survey.
Trading Economics has links to numerous indicators, including GDP, the inflation rate, and the balance of trade.
No one has a crystal ball to know for certain what the future will bring. But savvy business owners watch various indicators to detect patterns and possibilities.
Even better, as Abraham Lincoln said: “The most reliable way to predict the future is to create it.”