Swayed by the numbers

0914econindicators

Business leaders say reports, commentaries on economy influence decisions

Story by Robin Driessen Bruecker

Among the myriad factors that can influence the decisions a business owner makes for their company, economic reports – interest rates, unemployment numbers, gross domestic product, Dow Jones Industrial Average, and so on – also have influence.

Ryan Kauth, director of the Small Business Development Center at the University of Wisconsin-Green Bay, noted an abundance of business information is available through various media outlets via mobile devices including smartphones, tablets and laptops.

“Many small business owners and entrepreneurs have a few numbers or writers or periodicals or websites that they look at daily or weekly,” Kauth said. “I do think local and regional and industry and cluster information is extremely relevant to small business owners, whether anecdotal or reports.”

Kauth listed several reports that business owners typically monitor, depending on their industry and how much time they can and want to invest in following them. They include reports from the Fed, such as the prime interest rate; state or federal reports on jobs, the GDP and Consumer Price Index, and inflation; subscriptions to quarterly industry reports related to one’s industry or academic degree; Wall Street Journal articles; and email subscriptions. Kauth sees these options used the most by local businesses.

What they follow

New North B2B touched base with several business owners, representing different industries, to get their thoughts on whether they follow economic reports or find other sources of information such as word of mouth more useful.

“The general health of the economy is important to us,” said Gail McNutt, CEO of the nonprofit Girl Scouts of the Northwestern Great Lakes based in Green Bay. “Our three main sources of revenue are public support – donations from the community, United Way, and foundations, cookie sales, and program revenue.”

She said if people are unemployed or underemployed, they may be less likely to donate to a charitable cause, to purchase cookies, or send their kids to camp. “Likewise if they are afraid of losing their jobs, they may be more cautious with their disposable income,” McNutt said. “So any indicator of public confidence, along with unemployment rates, tends to help us understand the external climate in which we work.”

She emphasized these indicators are not used as an excuse when revenue is down. The organization simply gets creative with ways to boost revenue and achieve financial goals.

McNutt and her team keep an eye on GDP reports to determine whether the economy is growing or contracting and unemployment rates to determine if fewer or more people are working.

Watching the Dow and S&P 500 also gives an idea of what’s going on with investments people make, she said.

“These are good outcome measures,” McNutt said. “The driving metrics, or leading indicators, tend to be more interesting to me; these help, in theory, to predict what is about to occur, rather than what is currently occurring or what happened last month.”

McNutt said other reports including building permits, money supply and index of consumer expectations also are considered leading indicators.

“Each industry likely has those that they find to be most directly correlated to their business,” she said.

While economic reports aren’t the main influence for the business decisions made at ITConnexx, owner Brian O’Shaughnessy pays attention to unemployment rates. The De Pere-based company provides full-service outsourced information technology help to businesses that range in size from 20 to 300 employees.

“As a small business owner, I certainly pay attention to national and regional economic reports,” O’Shaughnessy said. “However, I’m not deliberate or consistent in terms of tracking on a daily or weekly basis.

The financial strength of regional small businesses plays a large role in his decisions.

When a company is going through tougher times outsourced IT services may be reduced or set aside for better days, or tasks may be performed in-house.

“I mostly use economic indicators to give me confidence – or a level of comfort – when considering the next moves for ITConnexx,” O’Shaughnessy said. “For example, if job growth is stagnant and unemployment is high, I will be less aggressive with our growth. Alternatively, if economic reports give me confidence that the local business economy is strong, I am able to be more aggressive – knowing that we will also be successful.”

As the owner of Richards Insurance agency in Oshkosh, Tom Sitter follows the interest rates reported by the Federal Reserve, which he feels is a key report for other industries, plus regional reports on new-home and commercial construction. “Interest rates can affect the loan on my building when it renews,” Sitter said. “Building construction is a forecast of homeowner and business insurance needs for our area.”

He also watches the annual reports from the various companies he does business with because the loss-ratio for claims paid the previous year give an insight as to rate increases that may be on the way.

Local reports tend to be a “better barometer” than national reports, Sitter finds.

“I find that a number of national reports do not reflect what is happening here in the Fox River Valley,” he said. “The Fox Valley area traditionally performs better than the reports we hear nationally. The Valley seems to ride out a downturn better than the national numbers and we may take longer to come back when there is an uptick, but overall we fare better in the end.”

Dan Gould, owner of Uncommon Grounds Specialty Roaster in Appleton, watches news and business networks while keeping an eye on reports and trends, “some more than others,” he said, adding that “unless the economy is tanking, or a large company close by is laying off, those macro statistics don’t really affect me directly.”

Gould said reports and trends closer to his pocketbook matter.

“For instance, when the retail economy trended downward during the cold months of January, February and March, I was affected,” he said. “We really felt those slower days. Then when the reports came to light in the spring that as a national trend many businesses were affected I thought to myself, ‘well, I’m not alone.’”

Gould also stays updated on coffee industry trends.

“When coffee prices fluctuate I am affected (and) when the prices of supplies go up I take notice and adjust my purchases,” he said. “But day-to-day reports on a national scale, like unemployment rates or interest rates, do not affect my day-to-day business decisions.”

Word on the street

Kauth said talking with customers, vendors, suppliers, peers and associates who interact with customers has “extreme value.” Information from these groups can impact the decisions and moods of a business.

“That subjective information, along with more objective economic data – locally, regionally, nationally – is a pretty good marriage,” he said.

ITConnexx’s O’Shaughnessy looks at interest rates and job growth to get an idea of the local business climate. However, he finds that “word on the street” is much more valuable.

A peer group, which consists of ITConnexx and 10 other IT companies, discusses the status of the local economy each time it meets.

“Our model is unique; not just in northeast Wisconsin, but nationally,” O’Shaughnessy said. “Our model – and service offering – has matured to a level that truly differentiates us from the traditional IT service provider. In a nutshell, the ITConnexx business decisions are 80 percent the result of the circumstances that we are in as a company – capacity to support our clients, new client acquisition, etc. Feedback from published economic reports, feedback from industry peers, and feedback from other local business owners make up the other 20 percent.”

Richards Insurance’s Sitter said his agency makes business decisions based on “sound information” rather than what the competition is doing.

But upbeat news from other local businesses is a welcome indicator of overall economic health, he said.

“Hearing good news on the street from other business owners is always a feel-good for the heartbeat of the Fox Valley and also for our community,” Sitter said.

Uncommon Grounds’ Gould also finds that positive comments create positive energy, and usually doesn’t allow negative news or remarks to influence him. “Most small-business owners I know also seem to put out a positive light, even when things may not be so sunny,” Gould said. “My brother owns a small business and is often candid with me about how things are going. Even after a down month he looks at the glass half-full. He makes his orders just a bit larger than last year.”

At Nell’s Wigs & Boutique in Green Bay, Stacey Nellen-Kolze said she relies “much more heavily on current trends in my industry and with my competition and with my referral sources versus reports on what the national or regional numbers are or how the economy drives them. We rely so heavily on what others say that we work with a very focused group within the medical field, the cancer/oncology community.”

She said what her company does and how well it provides service, creates a positive word of mouth.

“We have local as well as national competition online, so with what we have created here, we continue toward the goal of setting ourselves apart from them by providing a personable yet professional service and setting,” Nellen-Kolze said.

Andy Howitt of Shipyard Marine in Green Bay and Oshkosh tries not to let short-term national or global crises affect his company’s strategic planning.

“I will pay more attention to industry trends, weather patterns and always try to ride the wave of what products are hot until it peaks and get off once it has crested to avoid riding it down,” Howitt said. “No matter what the economic condition, as long as there is water people will buy boats. It’s just a matter of what kind they will buy and how many they will be buying.”

Howitt said his industry is faced with more of a generational downturn than an economic one because as the Baby Boomer generation gets older, they are looking to downsize as opposed to buying larger.

Howitt and other area boat dealers meet quarterly and compare notes on how sales are going and the impact of outside forces.

“What really affects our business and what short-term things I try to pay attention to are the volatility in things such as fuel prices, interest rates, etc.,” he said. “It doesn’t matter much, as long as people can plan and budget for it. But when they become inconsistent and are always fluctuating causing uncertainty on how high or low they may go, that’s when it becomes tough for us to manage or predict how much we will sell, which in turn affects our inventory levels, carrying costs, margin erosion and so forth.”

The Girl Scouts’ McNutt noted the combination of available data, including leading and lagging indicators, plus the actions and opinions of competitors as well as client/vendor feedback, can aid business owners in making the best decisions for their companies.

“Each are data points, which together can help paint a picture of the current climate and trends to watch,” she explained. “It’s easy to get overwhelmed with data – there are hundreds of economic indicators alone, and it could be a fulltime job simply to watch those. What’s important is to understand which data will best help drive the right decisions.”

Robin Driessen Bruecker has been writing for magazines and marketing departments since 1995.