Definition: The year-over-year growth rate compares a time period, usually a month or a quarter, against the same time period last year. It is a more effective way of looking at performance. If you are doing better than last month, for example, but worse than this time last year, then you might be lulled into thinking you were improving when in fact you were not. The improvement might simply be because you always do better this time of year. For this reason, whenever you are looking at a financial or economic report, make sure you know whether it is being compared to the last period (quarter, month, week, day) or year-over-year.
One of the advantages of year-over-year comparisons is that it automatically negates the effect of seasonality. For example, employment statistics take a dive each June because school lets out, and teachers are no longer employed. A month-to-month comparison would show an alarming drop-off if you didn't know to take the seasonality into account.
For example, in June 2011 a mere 18,000 jobs were added during the month. This was less than the 54,000 jobs added in May and 244,000 jobs added in April. The uemployment rate also increased to 9.2%. Investors grew worried that the economic recovery was weakening, forcing the stock market to drop, and driving up the prices of safe haven investments like Treasuries and gold. (See Current Employment Statistics)
Year-over-year comparisons revealed a truer picture of the employment trend. In fact, nearly one million jobs were added between June 2010 and June 2011 -- a more positive indication of growth.
How to Calculate the Year-Over-year Growth TrendTo calculate the year-over-year growth rate, you will need two numbers and, of course, a calculator. Then take these steps.
- Subtract last year's number from this year's number. This gives you the total difference for the year. Hopefully, it's positive and indicates year-over-year growth, not loss.
- Then, divide the difference by last year's number.
- That give you the year-over-year growth rate.
Staying with the employment example, in June 2011 total employment was 131.017 million. Total employment in June 2010 was 130.021 million. Here's how to calculate the year-over-year growth rate.
- Subtract 130.021 million from 131.017 million. The difference is .996 million, or 996,000.
- Divide .996 million by 130.021 million, last year's employment number.
- The answer is .8%. That's the year-over-year growth rate.
Also Known As: Y-O-Y, YOY, year over year, year to year