Economic indicators are key statistics issued by the government to indicate the direction of the economy. While no one indicator will give you all the information you need, there are several buckets to consider when planning for your small business. These 3 buckets are leading indicators, lagging indicators, and coincident indicators. Leading indicators are economic indicators that predict future economic changes. Lagging indicators are ones that are reacting to events in the economy that have already occurred. Coincident indicators are occurring at the same time as changes in the economy. Think about driving a car, front windshield is leading indicators, side windows are coincident indicators, and rear window are lagging indicators. You need to pay attention to all 3, but looking ahead is always a best practice.
Leading indicators will help to let you know where the economy is headed. Some of the major US leading economic indicators are manufacturing activity, share prices, net business formation, and new construction. These four areas are showing a preparation for changes coming. If one is up but the other 3 are down, it may not mean growth for the US. Depending on the industry you are in, one indicator may mean more to you than other small businesses. For example, if you run an electrical business and you see new construction going up that is very impactful to you as a supplier for electricians and new work and parts needed.
Coincident indicators occur simultaneously to associated economic activity. Some of the major indicators here are the Gross Domestic Product (GDP), employment levels, and retail sales. If the economy is producing more then more people are employed and shopping which makes sense. So if your business is retail then you can feel and see on your balance sheets when this is trending positive or negative. You should look towards the leading indicators to get an idea of how long these cycles will last.
Lagging indicators are ones that follow an associated economic event. Some lagging indicators are income and wages for workers, consumer price index (inflation), and interest rates. If the economy had a long recession like we recently experienced the overall pay of workers goes down as do interest rates (to stimulate borrowing and purchasing). As a small business owner these will probably be least helpful in business planning, unless you need to borrow money then interest rates may become more important.
As you plan for the future of your company you can get data on these figures from government websites such as Bureau of Labor and Statistics (www.bls.gov), the Bureau of Economic Activity (www.bea.gov), and other government websites. Look at the indicators and your accounting, inventory, and records and see if you can see a pattern of correlation. If you can then you can better forecast future business changes, and not be caught with too much or too little inventory if the economic tide changes quickly again.