If you turn on your TV on CNBC or if you open your Robinhood app to check on your stocks, you can see that the market always reacts to the latest economic indicators. Whether it is a surprising unemployment rate for the month that shows more job positions have been filled than originally expected or the Consumer Confidence Index that indicates that customers are more willing to spend, Wall Street is directly impacted by this data and it should be no different with Main Street.
A recent survey published by Main Street America showed that approximately 7.5 million small businesses could close permanently in the coming months if the economic effects of the coronavirus pandemic continue. Even as the stock market roared back from its initial losses in March, in this K-shaped economic recovery the reality for SME’s is different, because access to funds is limited and customers have concentrated their spending in essential items.
But for small businesses trying to find an edge and regain their market share as well as online investors trying to better understand the stock market, how can economic indicators help them in this quest?
Check out below some of the reasons why you should add this analysis to your business strategy.
Track consumer behavior
The main reason the stock market is so sensitive to official economic numbers is that, if read and interpreted correctly, they show the consumer behavior and spending power of the population. And that is directly linked to revenue potential for companies.
If the Unemployment Rate goes up, there is higher pressure on a greater part of the country to pay their basic bills; therefore, they will spend less. Also, understanding the unemployment rate by state and how it compares to the national rate is a great way to have a local, more granular analysis.
If the percentage change for Personal Income and Consumption presents a growing trend in the last quarter, this is a good sign for the economy that results in more spending by consumers.
This means that most successful small businesses, which usually have a tighter marketing budget, can better understand the right time to focus their social media marketing strategy on ideas to attract more costumers who are actually prepared to purchase, not just window shopping at the physical store or browsing an e-commerce site.
On the other hand, if the Personal Saving rate has gone up combined with a decreasing Consumer Spending rate, this shows that customers are concerned about their economic future and require businesses to create promotions or highlight essential items to sell more.
Understanding the market temperature is critical for businesses of any size, but it can definitely provide a competitive advantage for those small businesses that can quickly and effectively access this data to make decisions based on actual information.
Economic Indicators for Credit Analysis
No, we are not talking about running a credit report for each customer that walks through your business doors. The idea here is to analyze economic indicators that provide the latest information on credit availability, delinquency rates, foreclosures, and bankruptcies that show the “economic health” of consumers, another sign that influences their spending decisions.
Are potential customers facing a higher financial burden to keep up with their student loans or mortgage payments? In that case, they will cut back on non-essential spending, which will directly impact potential revenues for local restaurants and bars, for example.
Has the available credit card limit increased nationally according to indicators? This can mean more people with disposable income and better opportunities for those businesses that can reach this potential market more effectively.
Remember that it is not enough to just read the numbers. As a small business owner, you must interpret and cross-reference different indicators to extract the data intelligence that will really make a difference on your bottom line.
Business Activity and Consumer Expectations
One of the great things about diving deep in the world of economic indicators is that businesses will have access not only to historical data. There are also many indicators out there that focus on surveys with other businesses and potential consumers, which can help you understand the market scenario, leading to better decision making.
The Federal Reserve Bank of Philadelphia publishes monthly the Nonmanufacturing Business Outlook Survey, which outlines the activities of businesses that are not in the manufacturing sector, that is, exactly the kind of information that will benefit retailers, whether brick and mortar establishments or online stores, and businesses in the food & beverage segment.
The Federal Reserve Bank of New York also publishes monthly a different set on data, focused on their survey with customers, indicating critical data that can be analyzed for your strategy, such as earnings growth expectations, job separation expectations and debt delinquency expectations.
Again, all this can be used by small businesses that understand how to effectively analyze this information to use it as a foundation for their marketing and sales strategies.
The Number: 7.5 million
The Action: Here at Spark SMB Data, we are ready to help you in this journey. Our team has created an exclusive monthly service that extracts data intelligence from around 30 economic indicators. Using data visualization techniques combined with concise and straightforward analysis focused on SMB’s, we can provide you with the information that large organizations use on a daily basis to guide their decisions.