With over a billion searches a day, Google is arguably one
the wonders of the modern world. Search
for almost anything and you will be returned tens of thousands, if not millions
of results in a fraction of a second.
Recent studies are now suggesting that search patterns can tells us more
than just the cheapest source of the must have gadget or who was the lead
character in ‘Bonanza’.
Internet advertisers have long understood the power of
search to establish trends in usage and demand for products and services to
produce instantaneous views of economic activity known as ‘nowcasting’, but
recent research is considering whether these trends in web activity can
actually provide an accurate forecast of what is happening in the economy.
If you think that your random search for a suitable
Christmas gift for your partner is of little interest to anyone other than
yourself, think again! Last year no
lesser august body than the Bank of England reviewed all the recent studies on
Google search activity to understand whether there was any validity in the
proposition that economic forecasts could be based on our search behaviour.
In particular, the Bank homed in on two particular areas of
interest in order to consider search as a suitable allegory for an accurate
economic forecast. They focused on
unemployment and the housing market, both areas which are frequently quoted a
real world factors related to economic activity. They found that Internet search data have a
number of appealing properties as economic indicators. They are extremely
timely and cover a potentially vast sample of respondents (approximately 50% of
the adult population in the United Kingdom now use the internet every day). In
contrast to most traditional survey methods, they are collected as a by-product
of normal activity, rather than requiring individuals or firms to respond to
survey questions after the event. This can avoid problems associated with
non-response or inaccurate responses. And it also means that information is
continually collected on a wider range of issues, rather than just on a few
pre-determined questions. As a result, search data can help analyse issues that
arise unexpectedly.
Although it remains early days, this analysis suggests that
internet search data contain valuable information for analysis of unemployment
and house prices. These applications treated the search data in a similar manner
to existing surveys in conducting standard regression analysis. However,
internet search data also has the potential to answer different sorts of
questions to existing indicators. Such data has the particular advantage that it
can help analyse issues that arise unexpectedly at short notice. Whereas survey
data must be consciously collected based on pre-determined questions whereas internet
data is collected based on behaviour at the a particular time and trend data
going back into the recent past helps to flesh out our understanding. Such data is generally generated without
engendering any form of bias that studies and surveys often find it difficult
to avoid. Equally the idle musings of
millions of internet users may well provide a great deal of ‘noise’ which
obscures the key trends.
However, without doubt the internet and associated social media
reflect the pulse of today’s society and as such reflect our collective social
mood. People learn what others are thinking and express what they themselves
are thinking by posting and promoting their thoughts and opinions on websites
like Twitter, Facebook, and on blogs. People reveal what is on their minds by
querying topics on search engines and together create a learning process and a
continuous feedback loop, whereby people form, express, and reveal expectations
in real-time.
If the revealed expectations derived from Google Trends suggest genuine predictive
power for future outcomes, then the symbiotic nature of social media and
internet search behaviour suggests that these channels may facilitate
self-fulfilling prophecies and if the predicted outcomes relate to economic
events, then analysis of Google’s search trends can become important tool for the
Bank of England to gauge and manage inflation expectations.
