August 3, 2011, 1:09 pm

A New Chart for Financial Indicators

By Henry Woodbury

The financial numbers generated by the U.S. and worldwide economic crisis have informed many charts and graphs but most are rudimentary. I have hoped to pull some into this blog, but haven’t seen any worth discussing as visual explanations.

Here is an exception. Bill McBride’s Calculated Risk blog offers a set of charts built on an elegantly different model. For example (click through for others):

Real Gross Domestic Product: Percent of Previous Peak (Calculated Risk)

McBride explains:

The … graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed – and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%.

The key mental construct is to remember that as positive indicators trend upward they define a new value for 100%. That is why periods of growth are represented as a plateau.

At The Atlantic, where I saw these graphs, Derek Thompson explains the graphs by simile:

The outcome reveals each recession in the last 50 years as a kind of hanging icicle.

The bigger the icicle, the bigger the problem.

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Filed under: Business, Charts and Graphs, Current Events, Visual Explanation

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