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Interpreting Economic Data

Author: Geoff Riley  Last updated: Sunday 23 September, 2012

Introduction

In this revision note we will look at some of the ways that data can be presented including:

  1. Tables of data
  2. Graphs and index numbers
  3. The difference between percentages and percentage changes
  4. Distinguishing between real and nominal economic data

Tables of data

The table below shows time series data covering consumer spending over the years 2004 through to 2008.

 

Column 1
New car registrations

Column 2
Household saving ratio

 Column 3
Real Household Disposable Income

Column 4

Growth of consumer credit

 

 

 

'000s

YOY%

%

% change

YOY%

2004

2,599

-1.8

4.0

1.1

14.2

2005

2,444

-6.0

5.1

2.0

12.5

2006

2,340

-4.2

4.2

0.7

7.6

2007

2,390

2.1

2.9

0.5

6.0

2008

2,116

-11.5

2.9

2.0

6.3

YOY means – year on year percentage change

Column one shows the number of new car registrations and is presented in two ways. Firstly the actual number each year and secondly the year-on-year change measured as a percentage. When we want to calculate a percentage change from one year to another, we take the change in the value and divide by the original value and then multiply by one hundred.

So if we take the % change from 2007 to 2008 as an example

The change in new car registrations is -274,000 divided by the 2007 figure and then multiplied by 100 to give us a percentage change.

= (-274,000 / 2,390,000) 100 = -11.5% (to one decimal place) – a sharp fall in car sales!

Column 2 provides information on the household saving ratio. Notice here that the data is measured as the amount of saving that households are doing expressed as a percentage of disposable income. It appears that the savings ratio has fallen over the years – to less than 3% in 2007 and 2008. But be aware that:

  • Although the savings ratio has fallen, average incomes have grown so we should be cautious about saying that the total amount that people save has declined.
  • The figure is an average across the whole economy – and average values must always be treated with care because for most people, their own savings ratio will either be higher or lower than the published figure, depending on their own financial situation, how much income they have. And also what stage they have reached in their life-cycle.

Columns 3 and 4 show the annual growth of real disposable income and consumer credit – two important variables that affect how much people have available to spend on goods and services.
A quick comparison of the two data series shows that consumer credit has been rising more strongly in each of the years shown. If you are given this data in an exam it might be worth doing a rough estimate of the average growth each year for your answer.

Real disposable income rose in each of the years shown – it is important to understand the difference between a fall in the rate of growth and an actual fall. For example between 2006 and 2007 real take-home incomes rose by 0.5%; this is a slower rise than the year before but still an increase. Likewise for consumer credit, the % change each year has been positive – but in 2007 and 2008 we see a significant fall in the rate of growth – from over 12 per cent to 6 per cent.

Using Index Numbers

  • Index numbers are a useful way of expressing pieces of information and collections of data. This section shows you how to express data in index number format and some examples of data which is commonly presented as an index number.
  • In economic data, an index number is a figure reflecting price or quantity compared with a standard or base value.
  • The base value equals 100 and the index number is expressed as 100 times the ratio to the base value.

Examples of data expressed in index number format

The consumer price index is a measure of prices for hundreds of different goods and services in the UK economy. The value of the index for each category e.g. clothing and footwear is set to a value of 100 at the start of 2005. A fall in the index tells us that prices are falling (deflation) and a rise indicates higher prices (inflation). Consider the chart below

 





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