BROWSE

Macro Environment

What is a 'Macro Environment'

A macro environment is the condition that exists in the economy as a whole, rather than in a particular sector or region. In general, the macro environment includes trends in gross domestic product (GDP), inflation, employment, spending, and monetary and fiscal policy. The macro environment is closely linked to the general business cycle as opposed to the performance of an individual business sector.

Explaining 'Macro Environment'

The macro environment in which a company or sector operates influences its performance, and the amount of the influence depends on how much of the company's business is dependent on the health of the overall economy. Cyclical industries, for example, are heavily influenced by the macro environment, while consumer staples are less influenced. The macro environment can also greatly affect consumers directly, affecting their ability and willingness to spend. Consumers’ reactions to the broad macro environment are closely monitored by businesses and economists as a gauge for an economy’s health. Effects from some of the market’s key factors influencing the macro environment include the following:

Gross Domestic Product

GDP is a measure of a country’s output and production of goods and services. The Bureau of Economic Analysis releases a quarterly report on GDP growth that provides a broad overview of the output of goods and services across all sectors. GDP is often the lead influencing factor of corporate profits for the economy, which is another measure of an economy’s comprehensive productivity.

Inflation

Inflation is a key factor watched by economists, investors and consumers. It affects the spending strength of the U.S. dollar and is a factor closely regulated through monetary policy by the Federal Reserve. The target rate for annual inflation from the Federal Reserve is 2%. Inflation higher than 2% significantly affects the purchasing power of the dollar, making each unit less valuable as inflation rises.

Employment

Employment levels in the United States are measured by the Bureau of Labor Statistics, which releases a monthly report on increases in business payrolls and the status of the unemployment rate. As of June 3, 2016, the U.S. unemployment rate is 4.7%. The Federal Reserve also seeks to regulate employment levels through monetary policy stimulus and credit measures that can ease borrowing rates for businesses to help improve capital spending and business growth, also resulting in employment growth.

Monetary Policy

The Federal Reserve’s monetary policy initiatives are a key factor influencing the macro environment in the United States. Monetary policy measures are typically centered around access to credit and federal interest rate limits, one of the main levers of the Federal Reserve’s monetary policy tools. The Federal Reserve sets a federal funds rate for which federal banks borrow from each other, and this rate is used as a base rate for all credit rates in the broader market. The tightening of monetary policy indicates rates are rising, making credit borrowing less appealing.


Further Reading


Formal and informal SME financing in the restaurant industry: The impact of macroenvironment
www.sciencedirect.com [PDF]
… default contracts, whereas a weak institutional and investment environment could lead to … Few studies, however, have investigated how macro environmental factors including financial infrastructure … In contrast, a less healthy macroenvironment with weak financial infrastructure or …

Financial distress and bankruptcy prediction among listed companies using accounting, market and macroeconomic variablesFinancial distress and bankruptcy prediction among listed companies using accounting, market and macroeconomic variables
www.sciencedirect.com [PDF]
… default contracts, whereas a weak institutional and investment environment could lead to … Few studies, however, have investigated how macro environmental factors including financial infrastructure … In contrast, a less healthy macroenvironment with weak financial infrastructure or …

Does financial macroenvironment impact on carbon intensity: evidence from ARDL-ECM model in ChinaDoes financial macroenvironment impact on carbon intensity: evidence from ARDL-ECM model in China
link.springer.com [PDF]
… default contracts, whereas a weak institutional and investment environment could lead to … Few studies, however, have investigated how macro environmental factors including financial infrastructure … In contrast, a less healthy macroenvironment with weak financial infrastructure or …

Micro-Mechanism, Market Structure and the Macro-Environment: The Operation Performance of the Commercial Banks in Developed AreasMicro-Mechanism, Market Structure and the Macro-Environment: The Operation Performance of the Commercial Banks in Developed Areas
en.cnki.com.cn [PDF]
… default contracts, whereas a weak institutional and investment environment could lead to … Few studies, however, have investigated how macro environmental factors including financial infrastructure … In contrast, a less healthy macroenvironment with weak financial infrastructure or …

A macro‐finance model of the term structure, monetary policy and the economyA macro‐finance model of the term structure, monetary policy and the economy
academic.oup.com [PDF]
… default contracts, whereas a weak institutional and investment environment could lead to … Few studies, however, have investigated how macro environmental factors including financial infrastructure … In contrast, a less healthy macroenvironment with weak financial infrastructure or …

A causal model of linkages among environmental dimensions, macro organizational characteristics, and performanceA causal model of linkages among environmental dimensions, macro organizational characteristics, and performance
journals.aom.org [PDF]
… default contracts, whereas a weak institutional and investment environment could lead to … Few studies, however, have investigated how macro environmental factors including financial infrastructure … In contrast, a less healthy macroenvironment with weak financial infrastructure or …

What drives financial innovations in Kenya's commercial banks? An empirical study on firm and macro-level drivers of branchless bankingWhat drives financial innovations in Kenya's commercial banks? An empirical study on firm and macro-level drivers of branchless banking
www.tandfonline.com [PDF]
… default contracts, whereas a weak institutional and investment environment could lead to … Few studies, however, have investigated how macro environmental factors including financial infrastructure … In contrast, a less healthy macroenvironment with weak financial infrastructure or …



Q&A About Macro Environment


What is a macro environment?

A macro environment is the condition that exists in the economy as a whole, rather than in a particular sector or region.

What does inflation affect?

Inflation affects the spending strength of the U.S. dollar and is regulated through monetary policy by Federal Reserve.

How do you measure employment levels?

Employment levels are measured by Bureau of Labor Statistics, which releases monthly report on increases in business payrolls and status of unemployment rate. As of June 3, 216, U.S unemployment rate is 4.7%. The Federal Reserve also seeks to regulate employment levels through monetary policy stimulus and credit measures that can ease borrowing rates for businesses to help improve capital spending and business growth resulting in employment growth.

How do you influence economic activity with monetary policy?

Monetary policy influences economic activity with credit measures that can ease borrowing rates for businesses to help improve capital spending and business growth resulting in employment growth .