Economic Indicators And Trends

To give you a good sense of how a changing economy might impact your business, you should look at Leading Economic Indicators. These are periodically published statistics and information about economic activity.

The following are the more important indicators.

Gross Domestic Product, or GDP, measures the total output of the Canadian Economy. An increasing GDP indicates that the economy is growing.

The Inflation Rate is measured by tracking the price of a "basket" of goods which includes foods, services and durable goods. Inflation erodes the purchasing power of a dollar so that more dollars are required to buy the same basket in a subsequent year.

The Interest Rate, or Bank Rate, is set every Thursday by the Bank of Canada. Interest rates affect the ability to finance major purchases.

The Unemployment Rate measures the number of people out of work at any given time. High rates of unemployment affect productivity, purchasing power, and the cost of social welfare programs.

New Housing Starts are measured because of the spin offs generated. Houses are major purchases and will generally include new furniture, appliances, decorative accessories etc. as well as the building materials. It therefore spurs economic activity in a number of different industries.

Sales of automobiles, furniture, appliances, and other durable goods are also measured. Complicated goods require assembly of a number of different components, creating spin off effects in various industries. Again, increases in these indicators reflect increased economic activity and confidence.

Plant equipment and tool orders and inventory levels are also important indicators. These measure the confidence businesses have in being able to sell their product and recoup their investment in these assets.

International trade statistics, in much detail, measure the flow of goods and services in and out of our local economy.

The Business Bankruptcy Rate reflects the ability of business to cope with the economy and their markets.

Of course all these only give you a general senses of the economy and what might generally be expected to happen in the near term. What specifically impacts you must be measured by your internal information system. For example changing sales and order levels, cost and availability of resources and raw materials, changing customer demographics and requirements...

Trends

The importance of trends to business cannot be overemphasized. Trends can create and destroy a business or improve or destroy its profitability. For this reason, those running a business must continually monitor external factors that impact on their business. 

Demographic trends reflect the changing composition, needs and preferences of a company's market. As with all change affecting a business, survival and continued well being depends on how well the change is incorporated into the firm. It may mean capitalizing on a new opportunity, changing operating methods or marketing focus, or improving and repositioning your product to respond to changing preferences.

I have compiled a list of the more significant demographic trends that impact business today. This list is by no means exhaustive and is largely the result of observation and reading various publications. You might consider how they affect your business. I have separated those relating to consumers and those related strictly to business units.

Consumers

These trends include such phenomena as changing numbers within age groups (ie the aging baby boomers, declining numbers of teenagers etc), environmental and health consciousness, increasing number of dual income families, more sophisticated consumers, increased desire for convenience etc. Business needs to recognize how these changes will impact on their business, and respond appropriately.

Business

These trends include decentralization in large organizations, increasing use of outside contractors, increased importance of staff training and education, a focus on productivity and competitiveness, increased communication alternatives, and increase in hardware and software and other technology alternatives etc.

In order to make this concept of trends truly useful to your business, consider this list and think about the trends affecting your industry. You should consider your customers, your suppliers, the state of technology and any other trends that might affect your revenues or the way you do business. Contacting your trade association, your chamber of commerce and others in your network is particularly useful. Once you identify the trends, you should consider how they will impact on your particular business and plan to deal with them.

The key is that those that adapt survive. Leading indicators, and other published economic information can be quite informative. Go to the Statistics Canada website for immediate needs and and look for published statistics in the business press. Forewarned is forearmed.


© 2015 John B Voorpostel CPA, CA, CMB
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