key metrics for small business

Key Small Business Metrics You Can Track to Identify Economic Trends

Gene Marks

Transcript

The views and opinions expressed on this podcast are for informational purposes only, and solely those of the podcast participants, contributors, and guests, and do not constitute an endorsement by or necessarily represent the views of The Hartford or its affiliates.

You’re listening to the Small Biz Ahead podcast, brought to you by The Hartford.

Our Sponsor

This podcast is brought to you by The Hartford. When the unexpected strikes, The Hartford strikes back for over 1 million small business customers with property, liability, and workers compensation insurance. Check out The Hartford’s small business insurance at TheHartford.com.

Gene (00:02):

Hey everybody, this is Gene Marks, and welcome to another edition of The Hartford Small Biz Ahead Podcast. This week, I’d like to talk about metrics to follow. As we’re heading into…I’m recording this right now, we’re at the end of November, beginning of December 2022. We’re heading into 2023. There was a lot of uncertainty in the world as to how the economy is going to be in 2023. And if you’re running a business, it’s really, really important that you follow how the economy is going. So you can make some decisions. If you feel or get a sense that the economy is turning down, obviously that’s gonna make you cut back on spending or hiring and investing. And obviously the same thing and the minute that you see things turning around might be the time to make that key hire or invest in some technology or something that will help you grow your business.

Gene (00:51):

My smartest clients are always watching what’s going on in the economy, and they’re always looking ahead to see where the economy is going. Now, most of my clients, the smart ones that I work with, they tend to ignore some of the big numbers that the media likes to rely on, like gross domestic product and the unemployment rate. And the reason why is that a lot of these numbers come from the government. Yes, they’ve been subject to years of analysis, but at the same time, they’re based on survey data, not necessarily real economic data or results surveys. And they tend to get revised a lot. They’re estimated when they’re first released, and then they get revised a number of times after that as well. And they’re also kind of after the fact. So let me share with you some data points that I track every month.

Gene (01:41):

I’ve learned this from some of my biggest clients. So, here’s a few. For starters, when it comes to the workforce, and you wanna know, are employers hiring or not? Again, I kind of shy away from the government’s numbers and I focus on the numbers that come from both ADP and Paychex. The two largest payroll companies in the country. ADP every month puts out what’s called their National Employment Report, and Paychex every month puts out its Small Business Employment Watch. So you can Google both of those. Set an alert for yourself, maybe a Google Alert from when these come out. You will find that, that is data that is based directly off of their payroll numbers from their customers and clients that they’re serving. So when either ADP or Paychex reports that employment is going down or wages are going up or the number of people on payrolls are fluctuating in some way, that’s actual data. This is not an estimate or a survey they’re making. This is like coming from their systems. So again, it’s the ADP National Employment Report and the Paychex, Small Business Employment Watch. Google, both of those. Now, there is one small business survey…

Gene (02:59):

That I do track every month and it comes from the National Federation of Independent Businesses. It’s called the Small Business Optimism Index. So it’s the NFIB, National Federation of Independent Businesses Small Business Optimism Index. I track that every month. I get an alert when it comes out because that way I get sort of a feeling of the sentiment of small businesses in the countries. Listen, there’s 30 million small businesses. We provide more than half of the country’s GDP and we employ more than half of the country’s workers. It’s important to know where small business sentiment is. I like the NFIB’s report because they do survey thousands of their members to get their sentiment, and it kind of gives me a good barometer as to where the trends are and where the economy is going. The next thing that I like to look at is retail sales.

Gene (03:49):

And for that, I go to the National Retail Federation. And again, if you Google NRF or National Retail Federation and Retail sales, they publish sales, their sales numbers from their members, actual data every month. They actually get a little bit more intense during the holiday season as well. Breaking this out between online and, and brick and mortar sales, as well as, specific numbers around holidays, Small Business Saturday, Black Friday, things like that. So the National Retail Federation, retail sales numbers is another number that I like to follow very closely. Here’s another one that is one you probably have never heard of, but it’s something that I track and look at at least once a month. It’s called the Baltic Dry Index, BALTIC Dry Index. It is a freight index that measures the cost of shipping through the Baltic Sea, which is one of the world’s most traversed shipping lanes.

Gene (04:45):

When that index is going up, it means that there is a lot of activity of ships going back and forth because there’s more demand for freight. That’s a good sign for the global economy. When that index is trending down, that is not such a good sign for the global economy because there’s less demand, there’s less traffic, it ships. So if you Google Baltic Dry Index, or better yet, go to a website called Trading Economics. It’s trading TRADING Economics.com. You can find the Baltic Dry Index there. They update that hourly or something. You don’t have to look at it obviously every hour, but once a month or so gives you an idea of where the worldwide economy is going. Here’s another number that I like to look at. It’s the TSA, the Transportation Security Administration’s, travelers numbers through the nation’s airports. That is tracked on the TSA’s website.

Gene (05:37):

You can get a graph of it on a great economics website called CalculatedRiskBlog.com. The TSA numbers themselves, the more I see them rise, the more that I see them get back to pre-pandemic levels on a consistent basis. That tells me that the travel industry is going good. The economy is definitely recovering. Just a couple more metrics that you should keep an eye on. Another one that I like is called the Architecture Billings Index. That is published every month by the American Institute of Architects, the AIA. And what it does is it measures what the billings are of their members. If architects billings are rising or getting stronger, that means that they’re working on lots of commercial and even high-end residential properties that are gonna be coming, being built sometime in the next six months or so. If that index is declining — not such a great sign. That tells me that the construction industry would still be in a weakened state.

Gene (06:32):

So the AIA, the Architecture Billing Index gives me a good idea how construction is going. And by the way, when we’re talking about construction and real estate, every week, Realtor.com puts out its weekly housing trends view, where it looks at prices and inventories and movements of commercial and residential, primarily residential real estate around the country. It’s an excellent analysis of the real estate industry. And listen, no matter what industry you’re in, we’re all affected by construction and real estate in some way. The more people that move in and out of our neighborhoods, these are things that have an impact on as well as freelancers and contractors that rely on construction work. So, Realtor.com has got a good analysis of weekly housing trends and something that’s worthwhile looking at. Finally, the ISM report, the Institute for Supply Management. Every month, they issue their report on business for the manufacturing and the services sector.

Gene (07:33):

They survey their members. They get a lot of actual data from their members. Their members are mostly purchasing managers. So these people are buying stuff and they’re, they get a report as to how they are, what they’re planning on buying, the profitability their companies, what their buying plans are, gives you a great idea from both a manufacturing and service perspective. The activities in those sectors and where they’re trending and where they’re heading. And by the way, when you look at all of this data that I’ve mentioned, focus on the trends, don’t get too caught up with whether something went up or down in one month. Look and see where the trend has been over the past few months that will help you determine where the trend is gonna be in the future. So let me recap: For employment, look at the ADP and Paychex reports.

Gene (08:16):

It’s the ADP National Employment Report and the Paychex, Small Business Employment Watch. For overall small business optimism and sentiment, look at the Small Business Optimism Index from the NFIB, National Federation of Independent Businesses. For retail sales, check out the National Retail Federations website. For Global Shipping and the Global Economy track the Baltic Dry Index. You can find it at TrainingEconomics.com. For travelers through our country, check out the TSA’s Daily Airport numbers. You can find those on CalculatedRiskBlog.com. The author of that site, he does that every week. He summarizes it. In the real estate industry, track the AIA’s Architecture Billings Index and also track Realtor.com’s weekly housing data. And finally, for an overall look at the manufacturing and service industries, visit the Institute for Supply Management site and look at their survey data that they do every month. These are like key metrics for key industries that impact the economy…

Gene (09:22):

They’re not global. They’re not just this overall sometimes politicized metrics that the Department of Labor or the government issues. They’re very important metrics that are coming right from specific industries using real data about how the economy is moving along. So I strongly recommend that you consider looking at those on a monthly basis, because my best clients, they are constantly looking at those numbers at least every few weeks, if not every month. Just to make sure, it’ll help them make their decisions as to the future. All right, you’ve been listening to another segment, another episode of the Small Biz Ahead podcast. Listen, if you need any tips or advice or help in running your business, please visit us at SmallbizAhead.com or SBA.TheHartford.com. My name is Gene Marks. I hope this information is helpful for you and will help you run your business. I’ll be back with you next week with some other tip or advice to help you run your business as well. Thanks very much for listening. We’ll talk to you soon. Take care.

Download Our Free eBooks

4 Responses to "Key Small Business Metrics You Can Track to Identify Economic Trends"
    • Heidi McKinnon | January 5, 2023 at 1:14 am

      What an incredibly succinct and helpful podcast episode. My business recently had its second anniversary and I am looking for ways to manage whatever recession may be upon us in 2023. This is quite helpful. Thank you so much!!!

      • Small Biz Ahead | January 5, 2023 at 2:21 pm

        You’re welcome, Heidi! Thank you for the nice comment!

    • Cynthia Barrett | January 3, 2023 at 3:58 pm

      You rock!!!
      Thank you for sharing, teaching and empowering us!

      • Small Biz Ahead | January 4, 2023 at 8:29 am

        You’re welcome, Cynthia! We’re so happy to hear you liked it!

Leave a Reply

Disclaimer: Comments are subject to moderation and removal without cause or justification and may take up to 24 hours to be seen in comments. Your email address will not be published. Required fields are marked * Please do not include personal policy information; if you have questions or concerns regarding your policy with The Hartford, please log into your account or you can speak directly to a Customer Service Representative.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.