Capacity: how much an economy can handle.
Economies don't always use their full capacity. When you come out of a trough, you have spare capacity. Coming out a trough and beginning expansion, there will not be any inflationary pressures. There is space for expansion.
At the start, you are able to increase output without inflation!!
When you get to the top of your expansion, you are starting to maximise your factors of production. The ability to produce more to meet demand becomes more difficult, this causes inflation.
In Australia, we are seeing that we are reaching the end of expansion in our business trade cycle.
Because we have low unemployment, we have a high demand for goods to be produced, however there is a labour shortage due to low employment. Therefore, there is less supply to meet demand, and we get inflationary pressures
Peak: the maximum point of real GDP growth, marks the end of an expansion.
Contraction:
Trough:
In economies there is always a certain level of investment, and economic activity.
The business cycle is usually irregular, as they do not occur at regular time intervals, and are unpredictable
Good government policy aims to smoothen the business cycle, and make them less volatile.
You want a long term of economic growth.
Upwards and downward phases of the business trade cycle are both bad in their own ways.
Smoothening the growth is best for the economy!
Flat line over a curvy line! :)
Immigration gives economic growth. It leads to move people, and thus increases labour, and creates demand for more goods alongside more jobs.
Indicators Activity: Factors of Production and Labour Market: From 2015 to 2020, there is an evident decrease in unemployment rate, while the underemployment rate remained rather stable. From 2015 to 2020, the unemployment rate went from roughly 6.1% to 5%, while the underemployment rate was almost unchanged, dropping partially from 8.8% to 8.7%. This indicates that the economy was in an expansionary phase, as labour is being sought after to fulfil capacity in the economy. From 2020 to 2022, the underemployment and unemployment rate spiked drastically as a result of the covid-19 pandemic. However, the rates have recovered and dropped significantly. The unemployment rate went from 7% at the peak of the covid-19 pandemic to 3.3%. This indicates that the economy has recovered from the effects of the covid-19 pandemic, and the economy is seeing a strong expansionary phase. In recent years it appears that the decrease in unemployment rate is decreasing, indicating that this expansionary phase may be coming to a close.
In terms of job vacancies and advertisements, from 2015 to 2020, vacancies were steadily increasing while advertisements remained relatively constant. Vacancies increased from 1.2% to 1.7%, while advertisements maintained a rate of 1.2%. This indicates an expansionary phase, as greater vacancies indicates a higher capacity of the market, and thus leading to higher economic growth. From 2020 to 2022, we see both job vacancies and advertisements fall as a result of the covid-19 pandemic, while as the economy recovered, vacancies and advertisements shot up drastically. Vacancies went from an all-time low of 1%, not seen before in recent decades, to an all-time high of 3.4%. Advertisements went from 0.5% to roughly 2%. This indicates that despite the pandemic, the economy still has unutilized capacity for economic growth, which is now being used. This indicates an expansionary phase. Furthermore, this links to the lower unemployment rates, as high vacancies and advertisements generally indicates a low unemployment. However, this may indicate further inflationary pressures in the future if the demand for labour is not met.
In terms of participation rates, from 2015 to 2020, participation rates were increasing, going from 64.8% to 65.3%. This indicates that labour was being utilized more efficiently in the economy, indicating strong economic growth. This is characteristic of an expansionary phase. Furthermore, high participation rates coupled with low unemployment indicates that labour is in high demand, and that there is greater pressure on businesses for labour, potentially indicating a future increase in wage and inflationary pressures for the overall economy.
Household Sector: From 2015 to 2020, disposable income appeared to be slowly growing from 0% to 2%, while consumption fell slightly from 2% to 1%. From 2020 to 2022, consumption dropped significantly initially to almost -12%, spiking drastically as the peak of the pandemic came to an end at 15% and finally ending at 4%, while disposable income spiked to about 8%, and then dropping to 1.5%.
For the saving ratio, between the years 2015 to 2020, the saving ratio initially decreased from 6% to 5% in 2018, however started to increase towards the end of 2020, to 7.8%. At the start of the 2020 pandemic, the saving ratio spiked drastically to 24%, however it has fallen to 12% in 2022, randomly spiking to 20% in the middle of 2021.
In terms of the total housing loan commitments, between the years 2015 and 2020, the rate was turbulent. From the years 2020 to 2022, the rate spiked at the peak of the covid-19 pandemic, and remaining at about $32 billion, an all-time high.
Australian Inflation: From the years 2015 to 2020, inflation rose at an unstable rate, rising from 1.2% to just above 2%. However, inflation dropped to below 0%, due to the covid-19 pandemic. However, it has risen drastically between the years 2020 to 2022, going from below 0% to more than 6%.
Interest Rates: From the years 2015 to 2020, the cash rate remained constant at a stable 1.5%. It started to fall in near the end of 2019, and then dropped drastically to almost 0.1%, presumably due to the covid-19 pandemic. However, in the middle of 2021 it has recovered to about 1.3%.
[saving rate?]
In terms of the total housing loan commitments, between the years 2015 and 2020, the rate was turbulent. From the years 2020 to 2022, the rate spiked at the peak of the covid-19 pandemic, and remaining at about $32 billion, an all-time high.
Business Sector: In the years 2015 to 2020, the GDP growth was steady, staying roughly around 3%. However, due to the pandemic, GDP growth dropped to -6%. In the years recovering from the pandemic, it rose to 9%, and has now dropped back down to 4%.
The indicators in the NAB business survey all display moderate growth before the pandemic, a steep decline, and a quick recovery.
Level of firm investment: Business investment has only been declining. It appears unaffected by the pandemic, bar a slight increase. It dropped from 13% in 2015 to 11% in 2022.
Wage price index growth stayed quite consistent throughout 2015 to 2020, however it was turbulent with highs and lows.
In terms of business investment components, machinery has remained constant, however, it has been declining in recent years, dropping from 4.2% in 2015 to 4% in 2022. Engineering was coming down from a large spike in 2015, and has since been declining, dropping from 3.4% in 2015 to 2.8% in 2022. For buildings, it has remained stable but is in decline, going from 2.5% to 2.3%.
Economic Growth: Way before the global pandemic, GDP growth was rather low. It stayed close to 3%, bar some small peaks. During the pandemic, GDP growth dropped to about -6%, but has since recovered to almost 45.
The indicators for capacity utilisation all display moderate growth before the pandemic, a steep decline, and a quick recovery. Company profits and levels of investment show similar trends
Government: The government budget balance has been in deficit for many years. Briefly before 2008, the government saw major surplus, however since then the government has been in deficit, however, this deficit appears to be improving towards a surplus. The size of these deficits have been decreasing in the last 5 years. This indicates that economic activity is growing.
Commodities: LNG prices have spiked in recent years, going to almost 200 USD per barrel. This appears to be stabilising, and is now currently 150 USD per barrel. Brent oil has only been increasing however, going from 25 USD per barrel during the covid pandemic to 23 USD per barrel.
