Finding Your Own Economic Indicators

You know all about economic indicators, right? There's good old unemployment, for example. If it goes up, it's a sign that the economy isn't firing on all cylinders. Then there's new residential construction. If that goes up, it's a good sign.

Understanding the economy isn't just all about government statistics, though. You can also get insight by looking for your own bullish and bearish signals in the economy and the stock market.

Close to home
You can gather lots of useful information -- and revitalize your social life -- by talking to people you see in your everyday life. Just consider all the products around us. According to The New York Times, a Nielsen study found last year that during recessions, people cut back on purchases of cigarettes, sodas, and eggs, but they keep buying candy, beer, and pasta sauce.

Thus, to get a sense of where our economy is headed, you could ask your local convenience-store clerk how business is. Moreover, comparing soft-drink sales at companies like Coca-Cola (NYSE: KO  ) against reports from tobacco providers like Altria (NYSE: MO  ) could give a different perspective on the economy.

Related companies
You'll also find that you can get useful indicators regarding one company from looking at related companies. For example, Dell (Nasdaq: DELL  ) recently noted that demand for new computers is sluggish. That doesn't bode well for Microsoft (Nasdaq: MSFT  ) , which sells operating systems for those computers, or Advanced Micro Devices (NYSE: AMD  ) , which loads some of Dell's computer with its chips.

Sleuthing to figure out exactly what's inside a popular product can point you in interesting directions. For example, if you expect Apple's (Nasdaq: AAPL  ) new 3G S iPhone to be a big hit, you might want to see which companies are supplying its components, as their futures will be enhanced, too. The research company iSuppli took one apart and found components by companies such as Infineon and Cirrus Logic. Similarly, Palm's new Pre includes Texas Instruments (NYSE: TXN  ) processors.

Of course, I'm not the first one to think of riding on the coattails of smartphones. As well as Apple and Palm have done, Cirrus Logic is up 60% so far this year. Texas Instruments is up 39%, and Infineon has more than doubled in 2009. The S&P 500? Up nearly 4%.

While no one knows how a stock or the market will perform tomorrow or next week or month (though some will suggest they do), that doesn't mean you can't gather data to give you some insights.

Learn more:

Longtime Fool contributor Selena Maranjian owns shares of Microsoft, Apple, and Coca-Cola. Apple is a Motley Fool Stock Advisor recommendation. Dell, Coca-Cola, and Microsoft are Motley Fool Inside Value recommendations. Coca-Cola is also a Motley Fool Income Investor pick. Try our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.


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