Every business owner should know at least a little something about the economy they’re operating in. That might sound obvious, but a lot of people tend to view their world through a microscope, that’s to say they only focus on what’s relevant to their circumstances. Business owners can fall into this trap. Although you need to know what’s happening within your own company and the industry in which it operates, you can’t focus on these things at the expense of everything else.
The Economy Always Matters
The economy, both as a concept and a set of financial systems, impacts every business. For example, when interest rates are high, the cost of borrowing increases. For businesses seeking a loan or repaying an existing one, a rise in interest rates will increase costs (i.e. bigger repayments). Things can also change when inflation fluctuates.
The basic definition of inflation is the rise in prices of goods and services that decreases the purchasing power of a currency. Put another way, when inflation goes up, things become more expensive which means you get less for your money at the store. For example, if $2 used to get you a loaf of bread, rising inflation might increase the cost to $3. Alternatively, you might have been able to buy 10 apples for $5 at one point in time but, due to inflation, you now get eight apples for $5.
When inflation rises faster than wages and interest rates, things become relatively more expensive. This causes people to spend less on non-essential items. It also means the cost of running a business goes up. In this situation, you either have to absorb the extra costs, which reduces your revenue, or pass these costs onto the consumer by increasing prices. Anytime you increase prices it risks driving away customers so, in all situations, the impact of rising inflation can be significant.
How to Track Economic Activity Online
Because business and economics are intimately linked, you need to stay on top of the latest developments. The good news is that the internet is awash with ways to remain in touch with economic updates, announcements, and shifts. For example, the US economic calendar provides an overview of forthcoming events that can affect the economy. By sorting the results based on date or importance, you can prepare yourself for the next inflation rate statement from the Fed or interest rate change.
Another online resource that can give you the bigger economic picture is the OECD GDP growth tracker. Available for free, this tracker allows you to select a country and view a real-time GDP indicator that’s compiled using Google Trends data and machine learning software. You can also visit the US Bureau of Labor Statistics website for monthly reports and economic announcements. The site also provides official Consumer Price Index data and US import and export indexes.
You can’t control what the economy is doing, but you can make sure you know what’s happening. Knowledge is power when it comes to financial matters and business. The more you know, the better chance you have of acting or reacting in a way that yields a positive outcome. Of course, there are no guarantees in business. Simply knowing that inflation is rising might not protect your business from spiraling costs. However, if you can stay ahead of the curve, it’s easier to put provisions in place and remain buoyant during tough economic times.
