Economic Indicators

Economic Indicators

Economic Indicators

Economic indicators are various layers of statistics that provide insight and information into how an economy is functioning. An economist might use economic indicators to paint a picture of current economic performance, or make future economic predictions. As a team, we will profile six economic indicators: Consumer Price Index, Capacity Utilization, Unemployment Rate, Producer Price Index, Interest Rate, and Inflation Rate. Historic charts for each indicator are included in our Power Point Presentation. As we move forward, we will use this information to help us better understand our selected business, the airline industry.

Consumer Price Index (CPI)

The Consumer Price Index is published by the Federal Department of Labor for the purpose of measuring the cost of living in the United States. The index measures the general level of prices in a fixed basket of goods that are typically purchased by consumers. It translates the price of goods such as food, beverages, housing, apparel, transportation, medical care, and entertainment from what they were in prior years to what the same goods or services would cost today. The Consumer Price Index allows anyone looking at it to determine how much money they need to spend today in order to live in the same lifestyle they lived in previous years. The yearly change in percentage in the value of the index is one way of measuring the annual inflation rate. When the Consumer Price Index rises, it is an indication of an inflationary environment and that consumers will be paying more for the same goods or services than they had paid in the past. Conversely, when the CPI falls consumers will be paying less for the same goods or services than they paid in the past. Although, the former rather than the later is more prevalent in the history of the CPI.

Capacity Utilization

The performance of the airline industry can be measured in its overall ability to fill seats on flights, measured in available seat miles per month. The industry experienced steady growth through the 1990's until Sept. 2001. The airline industry increased the number of flights, and the size of planes used, particularly in higher traffic routes. In 1992 there were 45 billion available seat miles per month on domestic flights, which grew to 62 billion seat miles by 2001. After Sept. 11, 2001, the downturn in air traffic caused the available seat miles to drop to under 50 billion, a 20% decrease in a short time. By July of 2003, the available seat miles had increased back to 57 billion, and improved to 62 billion by July of 2004.

The other factor in this comparison is the number of unused seat miles, "the difference between available seat-miles and revenue passenger miles, are used as a measure of airline capacity utilization." (www.bts.gov/publications/transportation_indicators/October, 2002)

The number of unused seat miles has fluctuated between 15 and 20 billion per month during this same time period. This comparison shows that the airlines have increased percentage of filled seats on the average as the available miles have increased but the number of empty seats has remained relatively constant. In 1992 there was an average of 40% empty seats on all flights. By 2000 this figure has dropped to 30%. The last part of 2001 was an exception as many people cancelled flights. By 2004 the percentage of unused seats dropped to 20%, showing an overall improvement in capacity utilization.

Unemployment

"In economics, a person who is able and willing to work at a prevailing wage rate yet is unable to find a paying job is considered to be unemployed. The unemployment rate is the number of unemployed workers divided by the total civilian labor force, which includes both the unemployed and those with jobs (all those willing and able to work for pay). In practice, measuring the number of unemployed workers actually seeking work is notoriously difficult."(Wikpedia, http://en.wikipedia.org/wiki/Unemployment) During recession or inflation period the unemployment rate can rise. When a company doesn't have enough work or money to pay there employees that will have to start a layoff, which can leave a lot of people unemployed.

Current Status:

" The airlines industry's unemployment rate (15 percent) is nearly three times higher than the nations overall unemployment rate. In March 2003, Senator Murray wrote an amendment to provide an additional 26 weeks of unemployment benefits for workers at airlines, airports, and for aircraft manufacturers and producers."(The economy, http://murray.senate.gov/economy/econ-work.cfm).

"Due to the effects of competition from low-cost carriers such as Southwest Airlines and increased labor costs due to a new contract with employees represented by the AMFA labor union, Northwest began to make cutbacks in early 2001. Two small rounds of employee layoffs and other cutbacks were implemented in the months prior to the September 11 terrorist attacks. Subsequent to the attacks, Northwest was forced to make major changes to its business structure through major employee layoffs and other cost cutting measures....Northwest's labor problems also continued into the 21st century. On August 20, 2005, after months of negotiations, an impasse declared by the NMB and a 30-day cooling off period, the over 4,750 Northwest aircraft mechanics, janitors, and aircraft cleaners represented by AMFA went on strike against the company. After numerous negotiation sessions, no agreement was reached, and the company began hiring permanent replacement workers. In mid-October, after permanently hiring about 500 non-union workers, Northwest made a final offer to the union. The offer would have saved about 500 union jobs and offered four weeks of severance pay to terminated employees. This offer was significantly worse than the original declined by the union, which would have saved over 2,000 jobs and offered 16 weeks of severance pay."( Wikipedia, http://en.wikipedia.org/wiki/Northwest_Airlines).

Although there has been a high unemployment rate for airlines they are in a slow but sure process of recuperating. The economy and oil prices affect the airline agencies in a rough manner. If people are scared to fly or the prices of tickets are not price reasonable, airlines can go crashing into the ground. Many different airlines have