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Christine St Anne is Morningstar's online editor.

Over the past few months earnings forecasts have fallen, setting up the market for modest growth expectations.

Subdued earnings growth is also predicted for the industrials sector, which has had its fair share of earnings downgrades.

To date, the current reporting season has highlighted Australia's two-speed economy.

Already, BHP Billiton (BHP) has announced a profit of US$9.94 billion. Although the announcement fell short of expectations, it was one of the biggest first-half results in corporate history.

With resources companies expected to announce relatively modest profit results, industrials continue to come under pressure from a persistently high Australian dollar.

"With the Australian dollar remaining firm over the previous six months, averaging US$1.03 compared to US$0.95 in the previous corresponding period, the profitability of many companies will be adversely impacted, particularly exporting manufacturers and those competing for domestic market share against overseas competitors," Morningstar head of equities strategy Ross Bird says.

Along with the high Australian dollar, Bird highlights a number of headwinds for Australia's industrial companies.

"In addition to the high Australian dollar, the weakness in retailing, as consumers choose to focus on reducing household debt, and general rises in utility costs will flow through to bottom lines," he says.

Bird notes the current reporting season will continue to reinforce the strength of Australia's resources sector against the performance of industrials.

"Earnings guidance at the time of the fiscal 2011 reporting season and subsequent updates in recent months has seen earnings forecasts for many industrials pared back, such that our median EPS [earnings-per-share] forecast for the fiscal 2012 year is a modest 7.5 per cent for the universe of companies researched," Bird says.

"The industrials segment is likely to see a lower figure given ongoing strength in the resources sector."

Against this climate of earnings downgrades, it would be remiss of investors to shun the industrials sector.

However, such sentiment is short term. By applying the old rule of investing for the long term, investors can uncover quality industrial stocks at cheap prices.