New York – Google Finance recently launched Google Domestic Trends, which tracks Google search traffic across specific sectors of the economy. The changes in the search volume of a given sector on google.com may provide useful economic insight. Google has created 23 indexes that track the major economic sectors, such as retail, auto and unemployment. From the Google blog:
For example, the Google Luxuries Index tracks queries like [jewelry], [rings], [diamond], [ring], [jewelers], [tiffany] and so forth. As you can see from the screenshot below, this index has seasonal spikes in December — however, in the last two years there has been a pronounced decrease as the recession made consumers wary of spending on luxury items.
The Auto-Buyers Index is also interesting, especially the dramatic 40% increase correlated with the launch of the Cash for Clunkers program in the U.S.:
In an earlier blog post, we suggested that Google Trends/Search Insights data could be useful in short term predictions of economic variables. Given the importance of initial claims as a macroeconomic predictor, we thought it would be useful to try to forecast this economic metric. The initial claims data is available from theDepartment of Labor, while the Google Trends data for relevant categories is available here.
We applied the methodology outlined in our earlier paper, building a model to forecast initial claims using the past values of the time series, and then added the Google Trends variables to see how much they improved the forecast. We found a 15.74% reduction in mean absolute error for one-week ahead out, of sample forecasts. Most economists would consider this to be a significant boost. Details of our analysis may be found in this paper.
The bottom line is that initial claims have been generally declining from their peak and that, so far at least, the Google query data is forecasting further short term declines. It would be good news indeed if this particular Google trend continues.