One can talk about a percentage point increase in margins…but that just confuses people.
Let’s say I want to look at the after-tax profit margin (in this case “Nonfinancial corporate business Profit per unit real gross value added: Corporate profit after tax (profit per unit of current production) calculated using IVA and CCAdj” (A466RD3Q052SBEA)) .
figure 1: After-tax profits of nonfinancial corporations per unit of real gross value added (blue). Dates of peak-to-trough recessions as defined by the NBER are shaded in gray. 1992Q4-2022Q4 red dotted line; arrows indicate percentage and percentage point growth between these dates. Source: BEA via FRED, NBER and author’s calculations.
One can talk about percentage growth in profit margins (4.5%/yr in Figure 1), but it’s weird to calculate percentage changes in terms of percentages. This is why often when considering rate changes, people speak of percentage changes (0.4 percentage points/year in Figure 1), to avoid unnecessary confusion. (Those who are deliberately confusing may want to use the “percentage change” of the ratio).
When to Use Percentage Change? Well, when discussing horizontal stuff. For example, Figure 2 below.
figure 2: After-tax profit of the nonfinancial corporate business sector, logarithmic (blue). Dates of peak-to-trough recessions as defined by the NBER are shaded in gray. 1992Q4-2022Q4 red dotted line; arrows indicate percentage growth between these dates. Source: BEA via FRED, NBER and author’s calculations.
The other point I want to make is that just because something is growing exponentially technically doesn’t mean it’s necessarily going to grow fast. Maybe, maybe not. For example, something growing at 0.01% per year may be much slower than growing at 0.01 units per year… exponential just means that if the series is recorded, the recorded series grows linearly.
