Google Trends is a quick and popular way to assess the importance of ideas, events and trends by looking at the results of people’s web searches. In fact, as is well known, it has been used to study flu activity based on searches for flu related terms. And, right here on WCI, it has been used to study marital discord and the holiday spirit. Indeed, it can also provide economic information and is apparently even becoming a way to supplement economic forecasting tools. If the searches for something are trending up, it is suggestive that it is growing in importance as an economic force.
Well, my curiosity was triggered. Is the fact that people are looking for something a good indicator of what direction the economy might be heading? After all, we all want things but that is not the same as buying them – effective demand – though desire and effective demand are no doubt correlated. I decided to do a few Google Trend searches myself for Canada over the period 2004 to 2012 using some terms that in my opinion can be used indicators of economic activity. It should be noted that the Google Trends plot and data you can download after a search is not the number or volume of searches but rather an index of the number of searches for a term to the average number of searches for the term over the time period. For example, if there is a value in the graph of 5, this means that traffic is 5 times the average for the time period. As a result, it is a relative measure showing whether something is trending up or down. Volume of searches might be a better indicator of effective demand.
First search (Figure 1) was “flat screen tv”. It would appear that searches for this term have been trending down since 2009 but there are spikes that occur approximately from October to February. Another technological item – the “ubiquitous hand held personal communications devices” (no I did not use that term). Figure 2 plots the Google trends for “blackberry” and “smart phone”. Interestingly enough, both have been trending down since about the fall of 2011. More interesting, the results for “blackberry” seem to provide a very nice graphic on the overall fortunes of RIM.
Next, we may as well look at the housing market. Three figures here: Figure 3 “mortgage rates”, Figure 4 “new condo” and Figure 5 “new house”. The interest in mortgage rates which should be correlated with loan and home purchases has definitely been trending down since 2009 suggesting a slowdown. On the other hand, this data is for Canada and we have had a hot housing market. It could be that rates have been so low for so long that they are pretty much taken for granted and there is not much searching. There does seem to be a downward trend in interest in a “new house” but then there seems to be more recent interest in a “new condo”. On the other hand, what can this really indicate? If I decided to buy a new house, would I actually just type in “new house”? How can we narrow down the importance of terms used in a search so as to distill the economic intent?
I think this type of work is really interesting but it is in its infancy given the short span of data as well as the lack of refinement as to how these searches might actually translate into effective demand. Case in point – Figure 6. Here are the search results for two terms: “sex” and “babies”. Oddly enough, as evidenced by the trend over time from the search terms, Canadians seem to be less interested in “sex” but they are more interested in “babies” which all things given is often the tangible long-term output from having sex. However, both terms are so general that who really knows how they might translate into relationships and trends. I mean are people searching for "sex" as a service, entertainment, a how-to-manual or is it information on gender they are looking for? Similarly, if more people are searching for "smart tv" does it automatically mean there will on average be an increase in the interest to buy one?
For the time being, I suspect modeling at the Bank of Canada will continue to rely on traditional methods. If there is a change in the demand for staffing at central banks as indicated by combinations of terms used in Google Trends, ("web surfer"; "forecasting"; "central bank") then we may have an indication there is a shift underway. However, if this type of forecasting becomes the future, then there is probably going to have to be a melding of consumer theory, marketing, psychology and language use in the intermediate micro course of the future.