What is the best economic growth chart since 1900? That's a question I get asked a lot. The economy has been going through some very tough times lately and that combined with people being laid off and having their salaries cut may have people wondering what the best economic chart since 1900 looks like. Some say, “If it was the worst I can remember, it would show a downward slope.” Others are more bullish in their economic optimism saying, “The best I can remember was the worst.” To each their own, I suppose.
To make your own economic growth chart since then you have to be sure of what you are looking at. It can look like a rocket ship heading for earth or it can look like a slow, steady rate of increase. I'm going to use a piece of paper (not graph paper) and explain how I arrived at my own personal economic growth chart.
I first looked at what I termed “raw” data, which means I looked at the gross domestic product or GDP growth rates from one year to the next. This is not the most scientific way of looking at the numbers because it does not take into consideration what the economy did in between those years. In other words, it just gives you a starting point and you have to go back to make adjustments based on the actual performance of the economy. But this was a great way to get a feel for what happened in past economic periods. The problem is it can be difficult to actually pinpoint the problems of recent years versus earlier ones.
For me, it also helps to know how much actual inflation was in the past economic periods I looked at. If there was substantial inflation then that is definitely something to consider when making an economic growth chart since the charts will tend to show a steady rise rather than a decreasing one. But don't be fooled by inflation being low because that doesn't necessarily mean the economy is doing well. It could just mean that the supply of goods has increased and the demand has decreased. So the next thing you want to look at in your economic growth chart is the rate of inflation.
It is a bit harder to find real inflation statistics since it differs from country to country. You can find some charts online, but most of them don't give you the real data that you need to really plot an accurate economic growth chart since the inflation rate was probably not very high during the time period you are looking at. Some people use the Willem de Kooning chart which is widely used by forex brokers to plot the movement of currency over time. However, it only includes the price of certain commodities so if you want a more accurate economic chart you should use something like the Purchasing Managers Index since it is designed to specifically include Purchasing Managers.
The final thing to consider when trying to plot an economic chart is how you want to read it. If you are looking at a list . . . . . . of economic indicators then you would probably use a version of the Barometer chart where there are red and black lines showing the speed of growth, time frame of each economic indicator, and what the actual value of the indicator has been over time. If you are only looking at values of particular commodities or in some case the actual production value then you would probably be interested in a technical analysis type chart. Of course you could just as easily plot any kind of trend line on any kind of economic graph.