The Monthly Business Survey and the Global & Australian Forecasts, which are prepared by the National Australia Bank (ASX: NAB) are always closely scrutinised by investors. This week's release of both reports provides a number of interesting indicators for investors to analyse including:
- A sharp fall in capacity utilisation to a four-year low– especially in manufacturing, construction, mining and retail
- A deterioration in forward indicators implying a continuing soft outlook for domestic demand
- A significant fall in business confidence in October
- Despite a lift in employment conditions to a 1 year high, the index remains negative implying further job shedding
Despite what appears to be a reasonably pessimistic account of the economy, NAB did alter its forecast for when the Reserve Bank of Australia (RBA) will next cut interest rates from February to May, suggesting the RBA would continue to watch the data before making the next cut.
Analysing macroeconomic indicators and incorporating them into an investment framework is commonly practiced by many investors, however there are also many investors who think it is wise to block out this 'noise' and instead focus on the long-term potential of individual firms to grow their earnings. Investors who take this track and don't worry if GDP will soften from 2.4% to 2.3% and the like certainly save themselves from trying to accurately form an opinion from the mountain of indicators they are presented with.
Foolish takeaway
Trying to be "too clever" when it comes to understanding of the overall domestic and global economy is fraught with danger. However there are some basic indicators that may alert investors to companies that could be experiencing a tailwind rather than a headwind. Predictions of lower interest rates, coupled with recent housing data, should be welcome news for land developers such as AV Jennings (ASX: AVJ) and Peet (ASX: PPC) as well as building material suppliers including Boral (ASX: BLD) and Fletcher Building (ASX: FBU) making property-related stocks one space worth watching.
