How to read the economic climate

As an investor or a potential investor, you are generally very concerned about how the economy is doing! Being able to understand the economic climate, as well as being able to understand the economic forecast, are two important aspect of investing. Essentially, the economic climate is an indicator of how the economy is currently doing, and the economic forecast is a prediction of how the economy is going to be for different types of markets (i.e. stock, bond, money). Economic climate information is located in your daily newspaper. However, the economic climate information can appear to be very confusing. If you don't know what you're looking for, then you won't be able to understand how the economy (and your investments!) is doing! Here are a couple of tips to help you read and understand the economic climate:

1) Look at the current prime rate: The current prime rate is a figure which is listed in your daily newspaper. This is an indication of the existing economic climate. The current prime rate can help you to determine the best investment tool for your existing economic climate. To help you further read and understand the economic climate through the current prime rate, you can use a tool like Sawyer's Prime Rate Gauge.

2) Look at the Dow Jones points and the forecast: If you are investing in stocks, particularly stocks for large companies such as General Electric and Coca Cola, you will want to pay attention to the Dow Jones Industrial Market average (DJIA). This is listed online, as well as in other newspapers, such as the Wall Street Journal. The points listed for the DJIA average is an indication of the economic climate and how the stock prices are doing. In order to calculate the DJIA, the price for the stocks is divided by the 30 companies which are listed in the index. In addition to the DJIA, there are other types of averages that can help you to read the economic climate. For example, S&P 500 tracks the average of 500 large companies. In addition, The Russel 2000 calculates the average of 2,000 companies which are smaller.

3) Look at unemployment rates: A listing of the current unemployment rates is another good indication of the current economic climate. If the unemployment rate is low, this means that people are working and earning money. Consequently, the market does very well! The U.S. Department of Labor, in conjunction with the Bureau of Labor Statistics, lists the current unemployment rate on their website, which is www.bls.gov. This is an excellent resource to check to better help you read the economic climate.

4) Read business and investment publications: Generally, business and investment publications have a lot of commentary on how the economic climate is doing. By reading these commentaries and feedbacks, you will be able to better read and understand the current economic climate! Even findings articles that say "the economic climate is bad," will help you to better assess what the situation is like for investors. Many people who don't have the time or resources to follow the economic climate will look to these types of commentaries as an indication of how the economy is doing.

The important thing to remember, however, is that the economic climate can quickly change, even without being predicted in an economic forecast. The Great Depression is a good example of how the economy can change very rapidly. Remember, you shouldn't base all of your predictions for the economy based on how the climate has been during the past five years. It is a good idea instead to place your investments in different pockets and companies. This can help you to be well-balanced in your investments, and you'll be prepared for whatever the economic climate might throw at you!