From Main Street to Wall Street: Reading business vital signs
Yogesh Prasad, CFA, CAIA
CEO & Founder of Confluent Asset Management
In Part 1 of our series, we saw how macro-govt aggregates like interest rates, inflation, GDP, and unemployment work to set the parameters of our economic universe. In this article, let’s look down and examine signals from business front lines themselves. Think of these as the economy’s badges of honor. They’re informing us on how busy the factories are, how upbeat small business is, and what companies are going to be ordering in the future. Tracking these can give you valuable clues on where we’re headed and enable you to navigate your finances with more confidence.
Five key business-related indicators worth monitoring are:
1. Manufacturing PMI: The Pulse of the Factory Floor
What is it?
The manufacturing Purchasing Managers’ Index (PMI) is a monthly check-up on the country’s goods manufacturers. It asks factory managers about new orders, production, and employment, among other things. More than 50 is expansion, and less than 50 is contraction.
Why it matters
Production is susceptible to propel the economy. Think of it – new vehicles, appliances, or electronics orders flow through supply chains, influencing employment and input. This index offers a leading indication of demand for physical goods.
The latest read
The US ISM Manufacturing PMI dipped below the critical 50 mark to 49.0 up to March 2025. This means factory activity contracted modestly after a momentary infinitesimal expansion, which is a measure of moderation in the goods-producing sector.
Everyday example
A chronically low Manufacturing PMI can eventually mean less business on expensive items as businesses cut back on production, or perhaps tougher times for factory laborers. A strong PMI, by contrast, can mean economic prosperity.
2. Services PMI: Keeping Track of the Service Economy
What is it?
Similar to its manufacturing counterpart, the Services PMI gauges the health of the services sector of the economy – restaurants, healthcare, finance, tech, travel, and retail, just to name a few. Since services make up a huge chunk of our economy, it is a significant indicator. Anything above 50 means growth.
Why it matters
It tells us about the way people spend money and how well the businesses we regularly use are doing. It has a major impact on jobs because the service sector provides a large number of jobs.
The latest read
The US ISM Services PMI in March 2025 was 50.8. While still above 50 (expansion), this was a major slowdown from the previous month and the weakest reading since mid-2024. It means the service sector continues to rise, but at a slower pace.
Everyday example
With a healthy Services PMI, you might see more “Help Wanted” signs on Main Street shops and restaurants and be more likely to feel positive about things such as dining out or taking a trip. A declining trend can be an indication of firms becoming more conservative about hiring or expansion.
3. Small Business Surveys: The Mood on Main Street
What is it?
Indices like the NFIB Small Business Optimism Index measure small business owners’ optimism for the future. They ask questions about hiring plans, sales expectations, and plans to expand.
Why it matters
Small businesses power the economy, with a huge percentage of employment creation. Their collective mood is quite a good reflection on bottom-line economic health and future hiring or pay trends.
The latest read
NFIB’s index fell to 97.4 in March 2025, below its long-term trend and its lowest since October 2024. It shows rising uncertainty and more cautious expectations among small business owners about sales and the economy.
Everyday example
When small business optimism is high, your local stores will likely be more likely to hire, expand, or make investments within the community. Low optimism can equate to tightened budgets and possibly even less fast hiring on Main Street.
4. Inventory Levels: What's on the Shelves?
What is it?
It analyzes the amount of product companies hold in stockrooms and warehouses relative to their sales (generally defined as the Inventory-to-Sales ratio).
Why it matters
If inventories become too large (an increasing ratio), it could mean that sales are behind, so future reductions in production or prices will be necessary. If inventories become extremely low (a declining ratio), it could mean strong demand, but also possible shortages or price hikes.
The latest read
The most recent value for the US Business Inventory-to-Sales ratio overall (for January 2025) was 1.37. This was that businesses held around 1.37 months’ worth of inventory relative to their sales rate, a bit higher than last month but a bit lower than twelve months ago, showing a relatively stable but a bit higher level of inventories at the start of the year.
Everyday example
Do you ever notice enormous “clearance” sales? That might happen when inventories get too big. Not being able to find a specific product, though, might be due to lean inventories because people want too much of it or because the manufacturing is bad.
5. New Orders: A Look into Future Demand
What is it?
It tracks the value of newly received orders by manufacturers for short-term (durable) and long-term (non-durable) products. Think of it like the order book of the factory.
Why it matters
New orders are a good leading indicator. If businesses are ordering more equipment, machinery, or materials, they must believe that they will be busy within a few months. Falling orders suggest the opposite.
The latest read
US Factory Orders rose by 0.6% in February 2025, modestly higher than predicted after a robust January increase. This indicates continued demand for manufactured goods, a good omen for future production.
Everyday example
Firm new orders, particularly for goods such as machinery or tech, can signal that firms are committing to growing, a signal for an improved employment market and possibly improved economic performance in the long run.
Putting It All Together
No single measurement provides the entire picture. It is the whole picture – a gently declining manufacturing sector, dampening services expansion, prudent small businesses, moderately stable inventories but still upbeat new orders – that provides a balanced view of the economy. Following these measurements informs us concerning the forces underlying the level of employment, price levels, and investment prospects.
As always, knowledge of the economic landscape is the key to effective financial planning. In the event you have any queries regarding how these trends may influence your individual financial objectives or investment approach, do not hesitate to contact your advisor at Confluent Asset Management.
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