In manufacturing, accurate demand forecasting is critical to a business’ success. Forecasting often allows you to better strategize and coordinate your operations to meet customer demand, while also helping you avoid under- and over-production — and the financial consequences that might stem from each.

When you’re creating demand forecasts, the more relevant and high-quality data you include in your forecast, often the better. And economic indicators could factor into your decision-making. Here’s how economic indicators might enrich your forecasts, along with some of the top economic indicators you should consider tracking.

What Are Economic Indicators?

Economic indicators are datasets that quantify various aspects of the economy. It includes metrics you’re likely already familiar with, such as gross domestic product (GDP)  — the monetary value of the goods and services made within a country in a given period — inflation rate, and unemployment, but encompasses hundreds of metrics collected at the global, federal, state and municipal levels.

Economists, academics, and business owners alike use economic indicators to learn more about the current state of the economy and make predictions about the future.

There are two key types of economic indicators, both of which might be useful for forecasting:

  • Leading indicators are forward-looking indicators that help economics predict future trends. For example, consumer confidence can be used to predict future consumer spending.
  • Lagging indicators measure real data, allowing economics to confirm trends after they occur. For example, the industrial production index measures the real manufacturing output.

Key Indicators To Watch In Manufacturing

Every business is unique — and the economic indicators you decide to track might ultimately depend on your business goals. However, the following metrics may be especially relevant to small business manufacturers.

GDP

Tracking the overall direction of the economy is often critical for any business, including manufacturing. A steadily rising GDP indicates a strong, growing economy, which often coincides with increased consumer activity. And a declining GDP over multiple quarters signals a recession, which may dampen consumer spending — and may hit some manufacturing businesses, such as manufacturers of luxury goods, especially hard.

Consumer Confidence

In addition, manufacturers might look to consumer confidence for insights into the months ahead. High consumer confidence typically coincides with more spending, while waning consumer confidence may signal the need to scale back production.

Industrial Production Index

The industrial production index (IPI) measures the output across mining, utilities, and manufacturing, allowing you to track overall performance across manufacturing. Tracking the IPI might alert you to increases or decreases in the demand for manufactured goods, so you can consider adjusting your business plan accordingly.

Interest Rates

Interest rates impact the cost of capital, which may impact your business’ financial strategy. Rising rates increase your business’ borrowing costs, which may make it more difficult to invest in new equipment or expand your manufacturing capacity. In an elevated rate environment, manufacturing businesses might focus on paying down debts.

On the other hand, rate drops decrease borrowing costs and often may boost a business’ borrowing capacity. Falling rates may create an ideal environment for a strategic investment in the business.

Get Support as You Navigate a Dynamic Economy

Data is pivotal for demand forecasting, and economic indicators — and combined with your business’ internal data — might help you refine your business strategy. By gauging the current strength of the market, and what’s likely to happen in the future, you might start to map out the next steps to set your business up for success.

We’re here to support you every step of the way. Our Business Bankers can help you identify — and manage — risks within your business, support you in managing your cash flow, and even assist you in safeguarding your talent by providing financial wellness benefits. Plus, we can connect you to financing solutions created with the needs of manufacturers in mind, so you have the capital you need to make your next move. 

To learn more about how we can help you reach your goals, visit us online