Critical Headlines to Watch

We are in uncertain times, with headwinds prevalent and daily headlines bombarding small business owners with potential worries. While talk of an economic slowdown or recession is common, the impact, should it occur, will vary by business, industry, and local market. So, what is a business owner to do right now other than just stay the course and power through? There are a few key factors to watch and understand how they impact your specific business.

Inflation

Supply chain issues are nothing new and have played a role in inflation, but multiple factors are driving inflation overall. There are two key areas to monitor regarding inflation. First, what impact is it having on your customers and vendors? For example, some B2C businesses are seeing customers begin to spend less on certain goods due to rising prices of food and fuel. Other businesses are feeling the strain as well. Do you know what impact this could have on your business going forward? Second, understand how inflation is impacting the inputs required to run your business on a more granular level. While broad inflation metrics like the Consumer Price Index (CPI) make headlines, it’s important to dig deeper. Based on your business, what are prices doing for the raw materials you need and the goods you sell? Some commodity prices like steel have tapered off, while real estate prices in certain markets are showing signs of slowing, and food prices continue to rise. Yes, in general, goods and services are much more expensive than they were in the past, but it’s important to regularly monitor trends specific to your business—those raw materials, finished goods, and services that you rely on.

Interest Rates

Rates are increasing. But just like inflation, “interest rates” is a broad term—what rates matter to you? Central banks have raised key rates, leading to a similar increase in what most banks charge their customers for corporate loans and lines of credit. Home mortgage rates have risen significantly, while long-term treasury yields have also increased. All of these rates are expected to continue rising, though the magnitude is less clear. What impact do higher borrowing costs have on your business? Have you projected the financial impact to your P&L now and in the future? You should, especially if a loan renewal is on the horizon. What about your customers? These increases will affect both consumers and businesses. Could borrowing costs impact their ability to buy?

Consumer Spending

The economy has long been driven by consumer spending, and to date, consumer spending has remained steady, as has the overall health of consumers, despite economic challenges. While not often discussed, a decline in consumer spending can be an early indicator of a more significant economic slowdown, signaling businesses to take a more defensive stance.

Keep Perspective

Don’t let the headlines cause fear. Look beyond the noise to the key information that affects your business, not just internally, but also for your customers and the downstream impact on your supply chain. A quick glance at the headlines may give you a different answer than the data that really matters to your business. Drill down, explore the potential impact, and take action accordingly.