Macro environment refers to the overall operating conditions for an industry or country. Macroeconomists use different statistics and measures to evaluate factors that might affect performance of an economy or company, including all relevant economic, political, and technological factors. Macro-environment is different from micro-environment, which refers to the supply and demand fundamentals of a single industry, product, or region. Businesses can’t affect the macro-environment, but the macro-environment can greatly affect businesses. This is why business people and company owners use statistics from macro-environments to make investment decisions. For example, consider John F Kennedy’s quote, “a rising tide lifts all boats.” If the U.S. is experiencing consistent growth for its Gross Domestic Product, unemployment rates are low, and consumers appear to have excess cash, a retail chain may make an investment to be a part of the rising tide. If the opposite is true, the macro-environment may deter the retail chain from making the investment.<h2>Factors Affecting Macro Environments</h2>
Macro-environments are an interplay of several factors. The most important ones are generally referred to as DEPEST. They are as follows: DEPEST factors cover a broad spectrum to ensure that they cover all aspects of an economy. Even then, it is not always possible to predict the determinants that will affect the macro-environment of a country. An example was the COVID-19 pandemic which came out of nowhere and caused a severe curtailment of economic activity across the world. Several metrics relating to a country’s economic health are used to study macro-environments. Some of the more common ones are:
Metrics to Study Macro-Environments
Macro Environment FAQs
What is a Macro-Environment?
Macro-environment refers to the overall operating conditions for an industry or country.
What factors affect a Macro-Environment?
The most important Macro-Environment factors are demographic, economic, political, ecological, socio-cultural, and technological.
What metrics are used to study the Macro-Environment?
Some of the common metrics are GDP (gross domestic product), inflation, and unemployment rate.
How does the Macro-Environment differ from the Micro-Environment?
Macro-environment is different from micro-environment, which refers to the supply and demand fundamentals of a single industry, product, or region.
Why is the Macro-Environment important to investors?
Businesses can’t affect the macro-environment, but the macro-environment can greatly affect businesses. This is why business people and company owners use statistics from macro-environments to make investment decisions.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.