The origins of present-day Australia date back to the early 20th century, with the unification of the independent colonies residing on the continent. The Commonwealth of Australia was the result, and its inception marked the official birth of Australia.

Australia is a country with several unique qualities. The possession of a centralised trade location coupled with having an abundance of natural resources have given the nation an opportunity to prosper. Recognition of these inherent advantages led the Australian government to promote an attitude encouraging free trade. In the modern era, the country has seen its prosperity increase dramatically and has become a top-25 global economic power.

Listed below are six key economic indicators commonly used to define the current state of Australia's economy. Its currency exchange rate and individual markets are sensitive to the data contained in each one of the indicators upon release. The indicators themselves reflect the health of the nation's economy, and when taken together, provide an overview of its overall economic well-being.

GDP

Gross domestic product, or GDP, is the broadest measure of total economic activity within a nation. It includes every sector of the economy and is most commonly represented in terms of growth, from one period to the next. In Australia, GDP is reported quarterly by the Australian Bureau of Statistics. The data contained in the quarterly reports pertains to the previous quarter, and it's made available two months after the reference quarter.^[1]

GDP in Australia largely consists of the service and exporting sectors. The country's economic prowess is closely related to the services sector, which accounts for nearly 70% of GDP. The other key component is exports. Australia is a top-20 global exporter of goods and services, with the key exports being energy and foodstuffs.^[2]

CPI

The consumer price index, known as CPI, is the first of two inflationary indicators used in Australia to define current rates of inflation. The CPI is defined as being the average change in prices paid by households for a "fixed basket of goods" over a select period of time. In Australia, the "households" are located in the eight provincial capital cities: Sydney, Perth, Melbourne, Brisbane, Canberra, Hobart, Darwin and Adelaide. The CPI data is released quarterly by the Australian Bureau of Statistics, with the reference quarter being two weeks removed.^[1]

The "fixed basket of goods," on which the CPI calculation is based, is a weighted array of consumer expenditures. The statistic contains the following goods that are weighted accordingly in the calculation: housing 22.3%, food 16.8%, recreation 12.6%, transportation 11.6%. Other expenditures such as insurance, health, clothing, alcohol and tobacco comprise the remaining portion of the basket.^[4]

The CPI data carries a tremendous amount of influence in crafting of monetary policy in Australia. The Reserve Bank of Australia uses the data extensively in estimating a current "inflation target." Acceptable consumer price inflation targets are defined by the bank as falling between 2% and 3%. The estimated inflation target is crucial to the bank's decision on whether or not to alter interest rates concerning overnight money market loans, also known as the "cash rate." The Reserve Bank of Australia releases an announcement concerning monetary policy on a monthly basis, thus the quarterly CPI indicator is viewed as an intermediate inflationary indicator.

PPI

The producer price index, or PPI, is the second of the indicators used by Australia to address inflationary concerns facing the economy. In contrast to the CPI, the PPI defines expenditure from the perspective of the manufacturers and producers who provide goods and services to the consumer. In Australia, the PPI indicator is defined as being the average change in price of wholesale goods and services sold by manufacturers and producers over a specific period of time.^[6]

Unlike most other developed nations, Australia releases the PPI statistics on a quarterly basis instead of monthly. The indicator is calculated and released by the Australian Bureau of Statistics, with the release reporting on the previous quarter.^[1]

The Reserve Bank of Australia looks upon PPI in much the same fashion as it views CPI, and it adjusts monetary policy according to the estimated rate of inflation. The PPI and CPI reports are released on a quarterly basis, thus they both occur within the same calendar month, even though the exact day of each release may vary. The individual PPI and CPI data releases can provide extreme short-term volatility in the currency and equity markets of Australia, making it important to be aware of the release dates of each when managing financial assets.

Labour Force Survey

In Australia, the "Labour Force Survey" is the method by which data concerning the labour market is released to the public. It's an in-depth review of employment-related statistics that's released monthly by the Australian Bureau of Statistics, two weeks after the reference month.

There are two key elements of the Labour Force Survey that are most applicable to economists, analysts, investors and policymakers attempting to gain a current perspective on the economic situation in Australia. The first key element is the unemployment rate, which is expressed as the percentage of unemployed workers to the overall labour force. The second key item is the employment level, which measures the total number of paid employees in Australia, both full and part time. Employment is expressed as an actual number and most commonly presented in comparison with employment statistics from another period.^[7]

The Labour Force Survey is a crucial indicator used by investors to identify growth in different sectors of the economy. It is also an important tool used by policymakers when examining how current government policy could be affecting the labour market. Due to the fact that the survey is released on a monthly basis, it is seen as a leading indicator in relation to the quarterly GDP release.

Retail Sales

A key component of any developed nation's economy is the domestic spending of its residents, or consumer spending. The statistic by which consumer spending is measured in Australia is called the retail sales indicator. Retail sales is defined as being the aggregate receipts at stores that sell durable and nondurable goods. The retail sales data is taken from the Retail Business Survey, which covers all activities concerning businesses that predominantly sell to households.^[1] The retail sales data is released to the public by the Australian Bureau of Statistics during the first week of every month, with the data reporting on the previous month.

Australia's economy is largely service oriented, with about 70% of annual GDP being attributed to service industries. A key portion of the service industry is retail, thus the retail sales indicator is an important measure of the performance of this sector of the economy.^[8] Similar to the Labour Force Survey, the retail sales indicator is perceived by many to function as a leading indicator in relationship to the quarterly GDP report.

Merchandise Trade

Aside from the service sector of the Australian economy, the exportation of goods and services comprise a large portion of GDP. The merchandise trade indicator addresses the importing and exporting sectors of Australia's economy. Essentially, merchandise trade is defined as being the difference between the amounts of tangible goods and services imported, and the amounts of tangible goods and services exported. The statistic itself is represented in a comparative fashion with previous periods of time, most commonly on a month-to-month or year-to-year basis. Merchandise trade is released monthly by the Australian Bureau of Statistics, with the data being five weeks removed from the reference month.

Australia is one of the few leading industrial nations that functions as a net exporter of energy. Vast stores of coal, natural gas and crude oil have enabled Australia to prosper through trading operations focused on providing energy options to rapidly expanding economies in the Far East.^[9]

The greatest impact that the merchandise trade data release has pertains to the exchange rate of the Australian dollar. Due to the fact that international trade is often conducted using several currencies to facilitate transactions, exchange rate fluctuations are of paramount importance.

The merchandise trade data is seen by many to be a leading indicator as it pertains to GDP, in much the same way that retail sales and the Labour Force Survey relate to GDP. Changes in international export trends are reflected in a more current context according to the monthly merchandise trade statistics, and thus an expansion or decline in overall exports may signal a future move in the quarterly GDP release.

Summary

The Australian economy is strong and vibrant, and has a respected global standing. Outlined above are six of the most important indicators that traders, domestic policy makers, foreign governments and citizens can look upon in gauging the relative current health of the nation's economy. Industrial production, national employment levels, inflationary challenges, consumer spending and the international trade balance are all key elements of the economic picture. When used in concert with one another, the indicators can help to provide a clearer picture of Australia's economic health.

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