Economic Indicators and Business cycle - Example

Economic Indicators and Business cycle Name Institution Based in Melbourne, Rio Tinto Group is metal mining British-Australian Corporation that has grown to become one of the best metal mining companies in the world. It was founded in the 1873 when a mine complex was purchased along the Rio Tinto River by investors. It has grown through many mergers and acquisition to become one of the best mining companies in the world today. With the business cycle since 2003 to 2012 in Australia, the company has undergone series of development from economic perspective. This paper presents and discusses the movement of three economic indicators; GDP growth, Inflation, and labor market, and discuss their effects to the companies operations over the 12 years. More importantly, the paper will analyze their microeconomic effects to productivity and that of the Australian community. Rio Tinto Group is one of the Corporations which have been challenged by the fluctuating business cycle in Australia between 2003 and 2012. The graph below illustrate a business (Economic) cycle that has marginal effect to the operations of any economy and business firms. Growth Rate/ Level of economic activity Boom Boom Contraction Trough Upswing Time Economic indicators move correspondently with these different phases of the business cycle. The boom represent period when unemployment is reducing, prices increase and companies make high profits (Agénor, 2001). Governments increase the revenues due to high aggregate tax rate since more people are in work. The contraction period is the negative economic effects of the boom overcome the economy. Investments, production, as well as interest rate increases (macroeconomic policies harden). At the trough, unemployment increases and consumption of durable goods fall. Prices of goods and services fall gradually and companies make fair profits. Aggregate tax increases since more people are still in work. The upswing is marked by business innovations and efficiency. Government policies are revised to support spending and the macroeconomic indicators like GDP and income indicate positive growth (Knoop, 2004). Over the past years, the Australian GDP has shown significant but irregular upward growth. This is an indication of raising standards of living and annual growths of other factors of production. The average growth rate of the GDP has been recorded 3.5% between 2003 and 2012 and this figure is expected to double within the next decade. In 2003, the Australian was recorded at $ 0.466474 trillion. This figure rose steadily until the 2008 global crisis had its effects on the GDP to reduce it marginally to US $ 0.923499 in 2009. Since then, the GDP has been rising steadily due the effects of real GDP, the aggregate supply and demand, aggregate output, as well as other macroeconomic prospectus of the economy. 2012 recorded a GDP of US $1.520608. This was the highest recorded figure and the economy is expected to grow double within the next decade. The graph below illustrates the growth and trend of Australian GDP between 2003 and 2012. Inflation Inflation is defied as the persistent increase in the prices of goods and services in an economy. With the business cycles and swings in the economy, inflation is one of the indicators or determinants of these cycles. Inflation is measured by the Consumer Price Index on monthly basis, that aggregates to annual terms and as shown in the graph below, Australian economy is one of the economies that have experienced inconsistent rate of inflation between 2003 and 2012. As a function of aggregate demand and supply, as well as unemployment, decrease in unemployment rate beyond the natural rate of unemployment causes a rise in inflation. In the same way, a rise in production cost, for instance in increase in mining costs for corporations like Rio Tinto Group, increase key input prices such as oil. The short run effect is adjustment to high cost of production in the economy that lead to cost push inflations. A rises in the public confidence in the economy as witnessed in the 90s and early 2000 when the economy began to recess increases aggregate demand. This increased demand pressure on resources like minerals thereby causing some inflationary gap (gap between desired output and capacity of the economy to provide) in 2006. The 2008 global crisis increased the inflation rate to a record 3.7% and the economy has picked up to reduce it to 2.2 by 2012. The graph below best explains the inflationary fluctuation in the Australian economy between 2003 and 2012. Labor Market Labor market is defined by the rate of employment and rate of unemployment in a country. It is also a factor of population, age, and labor force. In Australia, the labor market has been hit with economic swings since 2003 prompting variations in the business environment. Companies like Rio Tinto Group have had to adopt with the challenges of economic cycles. The economy had suffered the economic recession that had taken place fro the wake of early 90s. However, in the mid 90s, the Australian economy underwent series of boom conditions which increased people confident of the future, before the signs of the global economic crisis were noticed. In 2003, the rate of unemployment was recorded at 12% with a participation rate of 63%. As shown in the graph below, the number total employed individuals in the labor market were approximately 9.5 million (roughly below 10 million marks). This figure has been gradually rising towards 2012 to an approximate record of 11.9 million of the total employed in 2012 (Lundberg, 2007). This is an indication of massive growth in the labor market since the industrial growth, for instance corporate growth of companies like Rio Tinto Group in Australia, has been able to absorb the employment deficiency in the labor market which had been occasioned by high rate of unemployment. This has been an indication of recovery even though slow in Europe and US, from the global financial crisis of 2008, and the conditions were picking up. A midst all theses, the Australian economy were seen to be very unpredictable since the construction booms associated with mineral projects in corporations like Rio Tinto group tapered off. With the increasing population, the number of ripe labor inputs is expected to increase as well, and the industrial growth indicated in the graph below will absorb and counter the effect of unemployment to great extents. The following graph explains total employment versus total person employed between 2003 and 2012. The number of people who are willing and are able to work but are unable to secure a job for one reason or another is what definers the unemp0loyment rate. Their effects to the economy affect economic growth and economies aim at reducing to a normal rate (natural) rate of unemployment (Mitchell, 2003). Unemployment rate has not been a constant figure in the Australian economy since it is a fluctuating figure since 2003. In 2003, the rate of unemp0loyment was recorded at 5.7%. This percentage reduced towards the global economic crisis in 2008 when it was 4.6%. The effects of the crisis increased the unemployment rate to record 5.5%. Although the economy has been picking up towards 2012, the unemployment rate on the other hand shows very small and significant reduction to 5.4 % in 2012. The graph below best explains the movement of the Australian unemployment rate between 2003 and 2012; References Agénor, P. (2001). Business cycles, economic crises, and the poor: testing for asymmetric effects. Washington, D.C.: World Bank, World Bank Institute, Economic Policy and Poverty Reduction Division. Knoop, T. A. (2004). Recessions and depressions: understanding business cycles. Westport, Conn.: Praeger. Lundberg, E. (2007). Business cycles and economic policy. Cambridge: Harvard University Press. Mitchell, W. C. (2003). Business cycles. California: University of California press. World business cycles. (1982). London, England: Economist Newspaper ;. Maddison, A., & Organisation for Economic Co-operation and Development. (2003). The world economy: Historical statistics. Paris: OECD Wenzel, T. (2009). Beyond GDP - Measuring the Wealth of Nations. München: GRIN Verlag GmbH Sharp, P., & Great Britain. (1998). GDP: Output methodological guide. London: Office for National Statistics. Read More