Volatility can upend markets in a flash. Such uncertainty can negatively impact all types of companies, but especially merchant wholesalers. Adapting to an economic crisis in real-time can be difficult on the scale at which many wholesalers operate.
That's why it is so important to prepare and have a plan ahead of time. Proactively monitoring different benchmarks and economic indicators of recession can help your wholesaling business to mitigate short-term risks and responsively optimize operations amid volatility.
But what are the signals you should pay attention to the most? While every organization will have its own set of data points to watch, there are a few well-regarded economic indicators of recession to consider.
There is a fairly straightforward relationship between unemployment and the economy. When unemployment goes up, the economy is most likely going down. Vice versa for when unemployment is low and business activity is high.
Unemployment has been a reliable indicator of recession risk because it's a simple data point to interpret. More people without a job often means businesses are suffering and consumers are spending less.
A similar measure to keep an eye on is jobless claims. These are published on a weekly basis, as opposed to monthly for national unemployment figures. Also watch unemployment numbers in the state(s) you have locations or customers for the fullest picture.
Durable goods orders are widely watched for insight into economic performance. This benchmark tracks new orders for durable goods placed with domestic manufacturers for delivery in the near term.
The U.S. Census Bureau publishes reports which provide information on manufacturer shipments, inventories and orders.
Wholesalers play an important role in the value chain, often placing such orders for factory goods. It's important to keep tabs on the sector by paying particular attention to durable goods orders, as it is a leading barometer of industrial activity and economic growth, or lack thereof.
You might have heard of this signal by another name: "The fear index." The VIX™ works like other stock indexes such as the Dow Jones Industrial Average® or S&P 500®, except it tracks volatility. When stocks are declining and those other indexes are falling, the VIX is often rising.
The fear index has become a reliable indicator of what the market is thinking. It spikes during times of volatility, like the Great Recession and the COVID-19 pandemic of 2020, but watching it over the long term can help you gain a better understanding of business cycles. If the VIX starts to tick up consistently, you may be able to discern a pattern and prepare your operations for volatility.
There are a number of manufacturing indexes that are published, and each can provide insights. Whether national, regional or vertical-specific, such indexes provide a snapshot of industrial output and activity, which often directly correlates with economic growth.
One indicator to consider using is the Industrial Production Index, which is maintained by the Federal Reserve Bank of St. Louis. This index is among the most official sources available for manufacturer activity, measuring the real output of all U.S. facilities in manufacturing, mining, and electric and gas utilities.
Managing operations amid volatility can be a challenge, especially at scale. But having the right financial tools and services can help you better mitigate risk and get operations in a sustainable place.
As the Leading Bank for Business1, Comerica Bank has the solutions that merchant wholesalers can lean on during turbulent times. Contact us today for more information.
