In other words domestic demand will play a pivotal role in how the UK economy will handle the current crisis in the credit markets. In the world of economics this can be defined by decomposing the Gross Domestic Product (GDP). GDP is the most used measure of economic activity in a country. In simple terms it is measured as the sum of all domestic and foreign effective demand for national goods.
GDP = consumption + gross investment + government spending + (exports − imports), or, GDP = C + I + G + (X-M)
Our goal is to focus on domestic demand which is the sum of household, government, and firm expenditure also known respectively as consumption (C), public expenditure (|G) , and investment (I).
Households feeling the Grunt
Recent statistics show a sharp weakening in domestic demand. In particular, household spending growth has slowed considerably to its weakest since the start of 2003. More concerning is the tenuous support of the overall GDP figures which lie outside domestic component. So what does this mean for our investment decision process? Firstly, we should be concentrating on products that are staple and localised. Secondly, we should be concentrating on companies with low downside risk.
Sample Screen (based on suggested parameters) – these are not recommendations
Scorecard: Performance of the FTSE All Share (Excluding Investment Trusts)
These views are independent of FactSet Europe Ltd and are proprietary to Bobby Rakhit. For comments please contact rakhitreport@yahoo.co.uk.