National Australia Bank Ltd's (ASX: NAB) monthly business survey for January has shown a number of promising trends arising in Australia's business community.
According to the survey, "business conditions maintained last month's momentum and (it) is approaching three-year highs, while confidence was up for the first time in four months – both near or above trend levels." Although the results painted a surprisingly strong upside for the Australian economy, the bank is expecting another rate cut from the RBA in "late 2014."
Another surprising result was the jump in manufacturing, although both low interest rates and, more importantly, a lower Australian dollar appear to be responsible. Nearly all industries recorded positive confidence levels with the exception of wholesale and mining.
Despite its importance to the Australian economy, mining has been in the doldrums. Only this morning investors watched as Forge Group Limited (ASX: FGE), a mining and engineering services company, fell into a trading halt following Australia and New Zealand Banking Group's (ASX: ANZ) decision to withdraw funding from the troubled company.
After manufacturing, the next best performing industry was construction, then retail. With low interest rates and a new government in office, construction has been primed to perform for some time.
In the past 12 months Boral Limited (ASX: BLD), Peet Limited (ASX: PPC), Mirvac Group (ASX: MGR) and Stockland Corporation Ltd (ASX: SGP) have each notched up gains in share prices following a number of down years. Generally building and construction companies' share prices are slower to react to improving confidence than retail chains such as Harvey Norman Holdings Limited (ASX: HVN), Kathmandu Holdings Ltd (ASX: KMD) or JB Hi-Fi Limited (ASX: JBH) – which have each notched up impressive gains in the past year.
The survey did highlight potential weaknesses in the forecasts, such as soft labour conditions and "weaker underlying conditions" in the wholesale lending market. The latter points to below trend demand growth in the first quarter of 2014 at around 3%.
Foolish takeaway
A number of Australian companies are yet to experience the full tailwind of improving confidence and business conditions, which have arisen from lower interest rates and a weaker Australian dollar. Some examples include Peet, Mirvac and Myer Holdings Ltd (ASX: MYR). Investors should be looking to position their portfolios to benefit from the tailwinds before they've taken a hold.
