Analysis of the Main Economic Indicators of Australia

This report will detail the current trends in three key economic indicators within Australia, and the impacts of these if they are too high, or too low. Economic indicators are a piece of economic data, that is used by analysts to interpret current or future investment possibilities. This report uses three economic indicators: inflation, unemployment and income/wealth distribution. It has been seen that there is: an above average unemployment, a highly unequal wealth distribution and a below normal inflation. The Australian government needs to address the abnormal unemployment rate and wealth distribution.

Analysis

Inflation

“Inflation is an increase in the level of prices of goods and services that households buy. This is measured by the Consumer Price Index (CPI), the rate of change in those prices” (RBA, n.d.). In 1993 the RBA, Reserve Bank of Australia, set an inflation target of 2-3%, Which the CPI has stayed within until just before 2017 when began to start dropping lower. The current CPI for the June quarter 2019 is 1.6%, just higher than the expected 1.5%, but still lower than the wanted 2-3% quarterly. This CPI increase was because an increase in the following areas: food (highest in last 5 years), transport, recreation and culture, and clothing and footwear. This is linked to general decrease in Australia’s GDP, gross domestic product, which is about to hit the lowest rate in almost 2 decades (Clench, 2019). Although inflation has slightly increased, the expected inflation, expected change of inflation by consumers, has fallen of the past 2 years. This drop has been from mostly self-employed and skilled/unskilled workers. This drop in expected inflation may be a leading indicator for continued inflation drop, as if the people with money, the employed, think prices will continue to drop they will postpone purchase’s, causing a drop in inflation. Inflation and expected inflation are both in a downward trend, following a similar historical trend.

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Unemployment

“Unemployment is those whom are without work, are available to begin work and are actively seeking employment” (CHAPPELOW, 2019). It is measured in a total unemployed over total employed, to give an unemployment rate. In Australia the wanted jobless rate is 4-5%, compared to the currently 5.2% in the recent quarter. The total increase in unemployment is well above expectations and is starting to align with leading indicators, such as job vacancies and advertisements, all pointing to a slowdown in employment growth. To counter this growth RBA has cut interest rates, aiming to decrease unemployment to 4.5%.

Looking at the last year’s unemployment rate has had a general decrease in unemployment which is beneficial for the economy. Compared to the past 5 years, it is clear there is a general decrease in unemployment, except for in these current months which it has slightly increased. This is showing a good trend, which needs to be continued.

Australian labor market evolving with a job mix of 22% different in 2018 than January 2014, including a growth in the amount of ‘blue collar’ and more laborious jobs and a decrease in the hospitably sector. This ‘evolution’ of the Australian job market is much higher compared to similar countries (e.g., America, Canada), and is linked to a weak jobs market. The greatest Gap between posting positions and people with resume’s that fit those positions, are those with a higher education requirement. This was because Australian job seekers, with a higher education, were more likely to go overseas to find work, than to stay here. “While May job ad volumes are still down from 2018, it is important to note that 2018 was somewhat of an anomaly, with the highest [job ad volumes] in the past decade, proving that 5.2% unemployment rate may not be as bad as it seems (Janda, 2019).

Income and Wealth Distribution

“Income and wealth distribution, the way in which the wealth and income of a nation are divided among its population” (Encylopedia Britanica, n.d.). This is measured by the Gini coefficient. It is measured on a scale from 0.0 to 1.0, where 0 means everyone is equal and 1 meaning one person gets everything (Janda, 2019). The Australian Bureau of Statistics' ABS Household Income and Wealth Report 2017-2018 shows that incomes remain unchanged, as does the distribution of income. However, wealth is highly concentrated.

Another study also found 95% of people didn’t know how much inequality there is in Australia and where they sit on the national income distribution (Martino, Spraggon, Byrd, Liddy, & Tilley, 2019). Using the Gini coefficient, Australia’s income distribution is just above 0.3, which is good for developed countries. However, wealth distribution is 0.6, meaning its twice as unequal as income distribution. The current trend of Australian Wealth distribution being much higher than Income distribution, is summed up in the sentence “The rich get richer, and the poor get richer more slowly” (Janda, 2019).

Evaluation

Impacts of Too High/Low Inflation

If inflation is above the recommended 2-3%, then consumers purchasing power is greatly reduced, as one product will cost more than in last quarter. Also, increased prices, due to increased inflation, could lead to companies decreasing their employee numbers (RBA, n.d.). It also gives lower returns on investment. Another major impact of inflation if it is too high, is that Australia can lose its competitiveness against other countries, because why spend more when the same product can be bought for less? These impacts are unlikely at the current state, as the key trend is a decrease in inflation which leads to the opposite of this, but also has one major impact on the economy. If inflation continues to drop below 2% then consumers will delay purchase’s, which in turn cause’s inflation and the economy to continue dropping. Although inflation can negatively affect the Australian economy, the current trend isn’t as urgent to focus on compared to the other indicators.

Impacts of High Unemployment

“The Fairfax Lateral Economics Well-Being Index, which uses a range of indicators to measure changes in national welfare, shows the cost of long-term unemployment to Australia's collective well-being has reached $3.3 billion a year” (Wade, 2014). Not only this, but high unemployment also results in economic loss and a decrease in health and well-being. Only one of these impacts of unemployment is recorded within traditional economic indicators, less income tax. People being unemployed can lead to changed relationships within the family and the fact that one member of the family now spends more time at home with no clearly defined role’ can lead to frustration and resentment. Although Australia’s unemployment rate seems normal, the average rate of long-term unemployment has doubled since 2008. Unemployment also causes mental health, which is felt majority by males. Unemployment affects Australia’s; economy and its population’s health and well-being, needs to be focused on by the Australian government.

Impacts of a High Income and/or Wealth Distribution

Australia’s current trend of a very high wealth distribution is impactful on its population. This Trend isn’t positive and affects people’s health and well-being. Recent research seems to point to ill health caused by inequality in wealth and income. Also, education is affected by income/wealth distribution because “if children are less successful at school, they are less likely to become highly skilled workers” (Ingraham, 2018). This may be because poorer people have less importance on education, which is passed on to their children. Another major impact of this continued trend is economic growth slowing down. Allowing income and wealth distribution to become too large could be fatal for Australia. A highly unequal wealth distribution, needs to be the Australian government’s focus.

Conclusion

In conclusion, all these economic indicators are showing continued negative trends. It is extremely important for the Australian government to focus on at fixing one of these indicators. Unemployment is abnormally high and has many catastrophic impacts. If unemployment is continued to stay above the recommended 4-5%, then Australia will experience a decrease in both mental and physical health, and an economic loss. Another priority area to focus on is wealth distribution. This has similar impacts of unemployment, with focuses on people’s mental health. The Australian government needs to focus on the abnormally high unemployment and the highly unequal wealth distribution.

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