You may have noticed that your business revenue usually varies throughout the year. One of the reasons why you may record higher demand at some points and lower patronage at other times is changes in shopping trends. If you can closely predict online shopping activity levels over time, you'll be able to plan your marketing campaigns more effectively and position your business to be prepared for demand spikes. In this guide, you'll learn how to use economic indicators to predict online shopping trends for a better business operations strategy.

What Are Economic Indicators?

Economic indicators are measures the government uses to judge the state of the economy. These indicators give signals about economic growth, employment level, and inflation, which influence consumers' purchasing power. Examples are the national Gross Domestic Product (GDP), inflation rate, unemployment rate, and Consumer Confidence Index (CCI). To track these economic indicators, you need a forex trading account. This will allow you to access the economic calendar and the periodic reports on the economic indicators. 

How To Use Economic Indicators To Predict Online Shopping Trends

1. Consumer Confidence Index (CCI) 

The consumer confidence index (CCI) is a data-driven signal used to measure the future trends of households’ consumption and saving. The index is arrived at after gathering data on the public’s view on the general economic situation, unemployment, and the capability of savings as a household. If the CCI index is above 100, it means consumers are confident that the economy is improving and is on a good trajectory. When the general public holds such positive sentiment, they are more likely to save less and spend money on major purchases in the subsequent months. 

On the other hand, if the CCI index is below 100, it suggests that consumers are not optimistic about future economic improvements, and this can increase the tendency for more cautious spending and higher savings commitment. What this means for businesses is that when the CCI index is less than ideal, core products like food, rent, and transportation will experience better sales compared to less essential items like fashion pieces, entertainment subscriptions, and other products that fall in the ‘wants’ rather than ‘needs’ section.

The Consumer Sentiment Index (CSI) is another economic indicator you can assess for more accurate predictions.  It complements the Consumer Confidence Index by taking consumers’ view of their personal finances into account as well as their perspective on the economy. If the CCI and CSI point in the same direction, it suggests that the majority hold the same sentiment and is a more accurate signal to predict customers’ future shopping behaviors.

2. Interest Rates 

Interest rates are set by a country’s central bank and usually impact consumers and businesses in two ways: in terms of savings and borrowing. When interest rates are high, consumers are more motivated to save more and earn interest passively. The direct consequence of this is that more people are less likely to shop for more expensive items online. 

Additionally, high interest rates make borrowing more expensive, so shoppers looking to take out a loan to secure an urgent purchase may be discouraged by the exorbitant fees they would be required to repay. Conversely, a low interest rate may make savings offers unattractive, increasing the likelihood of consumers spending more. Individuals will also find it easier to make quicker decisions about taking a loan to make a big purchase due to the associated lower repayment amount.

3. Consumer Spending 

Consumer spending, also known as personal consumption expenditures, is the total money spent by households on goods and services. It directly signals how healthy an economy is. When consumer spending is higher, it stimulates businesses to produce more to meet demand. As a business owner, you can identify countries with higher consumer spending to expand your market reach. Locations with higher consumer spending are also the best places to expand product offerings, as customers are more likely to explore newer offerings and varieties. 

In the US, 32% of personal consumption goes to housing expenditures, 17% to transportation, 12% to food, and 12% to personal loans and pension spending. Entertainment accounts for 4.7% of consumer spending, while healthcare takes up 8%. On average, each US consumer spends $77,280 annually on various expense categories. The goal of every business is to be part of consumers’ budget lists. However, this is more achievable in areas where consumers have more disposable income and a higher tendency to spend.

To get a better perspective on how consumer spending changes over time, the Consumer Price Index (CPI) is used to track the average changes in prices of goods and services over time.  The CPI is usually assigned annually to all the spending categories, including food, transportation and household essentials. If the CPI of a category increases above the previous year, it means goods or services in that class cost more and may deter shoppers from spending more. The CPI allows you to see where inflated prices are likely to slow demand for goods and services.

4. Disposable Income

Disposable income directly impacts consumer spending and is a key economic indicator to keep an eye on. Disposable income is the amount of money consumers have left for spending and saving after paying taxes and other mandatory fees. When individuals have more money left over after sorting their essentials, they can shop online for non-essential items, luxury goods, entertainment, and travel. You may also notice a correlation between higher disposable income and an increase in the number of customers signing up for premium purchases online. 

And because shipping fees have for a long time remained one of the major reasons why customers abandon their carts, customers tend to be less price-sensitive when their discretionary income is larger. So when the consumer spending economic report is trending towards higher levels, it's a good indication that there will be more buyers in the market.

5. Retail Sales Year-over-Year (YoY)

Retail sales YoY measures the percentage change in total retail sales compared to the same period in the previous year. When overall retail sales are growing strongly YoY, it's highly likely that online sales are also experiencing more growth. During this period, if you're in retail, you may most likely record more sales as consumer spending will be higher. 

If retail sales YoY are weak, you may notice that there is less traffic to your online store. This may be due to tight competition in the market as businesses fight to maintain and attract new users. Another trend associated with declining retail sales is the presence of aggressive promotions and sales events. During this time, focus on optimizing your business operations, reducing costs, and streamlining supply chains to maintain profitability.

Key Takeaways for E-commerce Success

Economic indicators like consumer spending, interest rates, and retail sales can help you predict online shopping trends. This data is crucial to making smart business decisions on when and where to increase marketing campaigns or re-strategize on business operations. You can access reports on economic indicators from a forex trading account through the economic calendar to stay on top of all essential updates and trends.

FAQs

1. How do economic indicators affect online shopping?

They influence how much, when, and what consumers buy online.

2. How can businesses use these indicators to plan?

Businesses can use them to adjust pricing, marketing, inventory, and product focus in response to expected consumer behavior changes.

3. Can these economic indicators predict specific product categories or only overall online shopping trends?

While primarily predicting overall trends, these indicators offer clues for specific categories; for instance, higher disposable income likely boosts discretionary online goods, while lower interest rates particularly benefit big-ticket item sales.