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1. Collect the recent data regarding key economic indicators from a website such as Yahoo!Finance, MSN Money or The Wall Street Journal. You must collect complete information regarding the economic indicators, including inflation, unemployment, consumer spending, investment, interest rates, etc.
2. Organize the data in a spreadsheet and create charts to demonstrate recent trends in the economic indicators. The data can be long and tedious to interpret; using charts will simplify the data into instantly understandable information.
3. List the economic trends illustrated through the chart under two general headings: increasing trend or decreasing trend. This will help you make a comparison between how the selected economic indicators are interrelated.
4. Use the trends to determine the industries or segments that may represent attractive investments. For example, stocks for mid-size companies perform best during an economic boom, but stocks of large size companies are a safer investment during an economic recession.
5. Time your investments in risky assets appropriately. A decrease in interest rates indicates that the Federal Bank is trying to encourage investment, but economic activity remains slow. However, economic activity should pick up once interest rates stabilize over a period of a few months. It is wise to increase the proportion of investment in risk-free or less risky assets during a period when economic activity is slowing down. Risk-free assets are Treasury bonds issued by the United States government; all other assets are considered to have some risk.
6. Compare economic trends in order to better read the complete economic picture. For example, if a decrease in interest rates leads to a substantial increase in the level of investment in the economy, this might indicate that the slowdown was temporary, and it is a good time to stay invested. However, if a decrease in interest rates is accompanied by a decrease in the level of investment, this indicates chronic disturbances that might take time to recover.