Loading the player...

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.

BREAKING DOWN '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. The U.S. unemployment rate is 4.1% as of March 15, 2018. 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.

RELATED TERMS
  1. Macro-Hedge

    A macro-hedge is an investment technique used to mitigate or ...
  2. Macro Manager

    A macro manager is a boss or supervisor who lets employees do ...
  3. Global Macro Hedge Fund

    A global macro hedge fund is an actively managed fund that attempts ...
  4. Macro Accounting

    Macro accounting is the compilation of national accounts, or ...
  5. Low Interest Rate Environment

    A low interest rate environment is when the risk-free rate of ...
  6. 1913 Federal Reserve Act

    The 1913 Federal Reserve Act was U.S. legislation that created ...
Related Articles
  1. Personal Finance

    How the Federal Reserve Affects Your Mortgage

    The Federal Reserve can impact the cost of funds for banks and consequently for mortgage borrowers when maintaining economic stability.
  2. Insights

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  3. Trading

    Trading Around Key Options Indicators

    Learn the key economic indicators to help predict market movement.
  4. Insights

    A Primer On Inflation

    Inflation has a negative connotation, but is it all bad or does it offer some tangible benefits?
  5. Trading

    Why Interest Rates Affect Everyone

    Learn why interest rates are one of the most important economic variables and how every individual and business is affected by rate changes.
  6. Financial Advisor

    Microeconomics Vs. Macroeconomics

    Economics is divided into two broad categories: micro and macro. Find out what the difference is between them and where they overlap.
  7. Trading

    How CPI Affects the Dollar Against Other Currencies

    The Consumer Price Index is a broad measure of inflation, and inflation can have a dramatic impact on a currency's value against rival currencies.
RELATED FAQS
  1. What are the implications of a low federal funds rate?

    Find out what a low federal funds rate means for the economy. Discover the effects of monetary policy and how it can impact ... Read Answer >>
  2. What happens if the Federal Reserve lowers the reserve ratio?

    Learn about the Federal Reserve's monetary policy and the tools it uses to control it. Understand what happens if the Federal ... Read Answer >>
  3. How Do Fiscal and Monetary Policies Affect Aggregate Demand?

    Learn about the impact fiscal and monetary policy have on aggregate demand, and discover how the government influences economic ... Read Answer >>
  4. What impact does economics have on government policy?

    Learn about the impact of economic conditions on government policy and understand how governments engineer economic conditions ... Read Answer >>
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center