Understanding the economic indicators that impact your business

Do better business and grow with confidence

Know the numbers that matter and why.

Are you keeping up with economic news?

Do you take note of the economic indicators published in the media or tune out when the financial news begins?

It can be hard to keep up but these rates, indexes and percentages can directly impact the health of your business. In times of economic uncertainty, knowing these numbers could be the difference between moving forward and falling behind – you can ask your accountant targeted questions about the impacts on your business and it may build your understanding of how their advice and actions play out over time.

Consumer Confidence Index (CCI)

What is it?  

CCI is calculated by surveying consumer confidence in the economy based on 5 sub-indexes.

How is it measured?

Responses across the 5 sub-indexes are scored and combined. 100 is neutral, with positive and negative responses cancelling each other out. Scores above 100 indicate higher levels of confidence, while lower scores mean consumer confidence is down.

Who measures it?

CCI is based on the monthly Westpac - Melbourne Institute Index of Consumer Sentiment.

Why and how it can impact your business?

High confidence levels signal increased spending in the community, which is good news for business. Low consumer confidence sees tightened spending and a slow down in discretionary purchases.

What to ask your accountant?

What does the current CCI mean for my sector?

Is there enough consumer confidence to support a product launch this month or quarter?

Economic Growth

What is it?

Economic growth measures the size of the economy, using Gross Domestic Product (GDP) to compare the size of the economy from one quarter to the next.

How is it measured?

Data is collected from households, companies and government agencies every three months to measure:

• production (total value added from the productions of goods and services)
• income (total income generated by employees and businesses), and
• expenditure (total value of expenditure on final goods and services).

Who measures it?

GDP figures are released each quarter by the Australian Bureau of Statistics (ABS).

Why and how it can impact your business?

When the economy grows, businesses stand to benefit from increased levels of spending, confidence and investment. When the economy stagnates or shrinks, it’s harder to get finance, close deals and increase your sales.

What to ask your accountant?

What does the latest GDP figures indicate for my sector?

Is it a good time to hire more staff, invest in equipment or launch a new range of products?

Inflation

What is it?

Inflation is an increase in the price of goods and services over time. As the economy grows, prices generally increase too, reflecting the role of supply and demand.

How is it measured?

The Consumer Price Index (CPI) measures the percentage change in the prices of a basket of goods and services to calculate the rate of inflation.

Who measures it?

CPI figures are published each quarter by the Australian Bureau of Statistics (ABS).

Why and how it can impact your business?

In times of low inflation, CPI rises can justify price rises for your business. When inflation grows quickly, rising costs dent consumer confidence and reduce buying power, making it harder for businesses to increase revenue.

What to ask your accountant?

What’s the current inflation rate and is it expected to grow?

Will I have to increase prices to meet rising costs or is there room to absorb them?

Interest Rate

What is it?

Interest rates are used to calculate the amount of interest accrued by savings account holders and paid by mortgage and loan holders.  

How is it measured?

Interest rates are based on the cash rate which reflects the interest rate on unsecured overnight loans between banks.

Who measures it?

The Reserve Bank of Australia (RBA) sets the cash rate each month, which influences the interest rates set by individual banks and financial institutions.

Why and how it can impact your business?

If your business has investments or loans, the interest rate determines the amount payable. Rising interest rates mean mortgage holders spend less on discretionary items which may impact your business bottom line.

What to ask your accountant?

How does the current interest rate affect my loan repayments and investments?

Are interest rates expected to rise in the future?

Unemployment Rate

What is it?

The unemployment rate indicates how many people are looking for work each month, showing labour supply (households) compared to labour demand (businesses).

How is it measured?

The unemployment rate measures the percentage of people in the labour force who are able to work but do not currently have a job.

Who measures it?

The Australian Bureau of Statistics (ABS) releases monthly unemployment figures in the Labour Force Survey.

Why and how it can impact your business?

High unemployment puts stress on households but gives business more choice in the labour market. Low unemployment puts stress on businesses as it’s harder to get suitable applicants for vacant roles.

What to ask your accountant?

Is it a good time to hire more staff?

Should I revisit my pay rates or conditions to retain staff?

Increase your understanding to protect your business

No business operates in isolation. It’s vital to understand the state of the economy so you can predict trends, make better decisions and adapt quickly to changing conditions.

Ask your accountant about the economic conditions that impact your business.