Can Economic Indices Be Used To Inform Smart Business Decisions?

LegalShield Law Index infographic


Making business decisions can be stressful when you are a small business owner. A lot of people depend on you for their livelihood – over half of jobs in the United States come from small businesses and 66% of new jobs are created by small businesses. That’s a lot of pressure. So when you are deciding when to expand to another location, when to hire new staff, or when to remodel your business plan, it pays to do a little research to find out whether you are going to have the customer base to support those changes going forward. The most effective way to determine that is by paying attention to historic economic indices.

Have you heard of the ping pong table index? Basically when ping pong table sales are good that’s supposed to be an indicator that the tech industry is strong. And when ping pong table sales are down that’s supposed to indicate that maybe the tech sector is experiencing some hiccups.

But there are several economic indices that have been keeping data for years or even decades. The Federal Government has been tracking housing starts since 1959. Basically every time construction is started on a new house that information goes into a database, so you can tell when the economy is strong because more people are building new houses or when it is weak because fewer people are building new houses.

Other economic indices include foreclosures, bankruptcies, and consumer financial stress. A relatively new index that can help interpret when two or more of these indices is in conflict is the law index. If housing starts are up at the same time as foreclosures, legal indices can indicate that things are still on the upswing because these are old foreclosures being cleared out of the queue.

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You don’t have to be a business analyst to make informed decisions about your business. All the data is out there and you can use tools to make sense of it all. It stands to reason that if there is an economic downturn you should probably not expand to a new location, right? Or if things are looking up in the greater economy maybe you should hire some new staff? These are not difficult conclusions to draw based on available information.

These economic indices can also help you make better personal financial decisions, which can make you a stronger business person. When you are trying to figure out whether to invest in foreign or domestic markets paying a little bit of attention can help you make the most of your retirement investments as well, and stronger personal finances can lead to a stronger and healthier business. An Inc. article recently put it this way:

“The same lessons can be applied to your financial portfolio. Thinking about buying stock in a home improvement store? How are housing starts and housing activity looking lately? Thinking about selling off that old stock in the lawn mower company? Maybe housing activity is up and a lot more people are going to be buying lawn mowers this summer. Making informed decisions can keep you in the game longer.”