One of the strongest leading indicators of economic activity is the number of people who file for unemployment benefits. Macroeconomists Robert Gordon and James Hamilton have recently examined the historical evidence. According to Hamilton's summary: "...in each of the last six recessions, the recovery began within 8 weeks of the peak in new unemployment claims."
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 the Department 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.
skip to main |
skip to sidebar
Archives
4 comments:
Your post and the article has been food for much thought for me. Spent the weekend investigating Google insight for search. Among other things, I found that there is a highly significant positive correlation between danes and swedes search interest for "unemployment benefit society".
Yours
Sigge
By Gordon and Hamilton's estimates, then, the current recession will likely end 8 weeks after late March/early April, meaning late May/early June...smack ddab in the middle oof fiscal qquarter 3. Which is completely in line with the Fed's projections. We won't know for sure until Oct 29th 2009 when the Q3 GDP numbers are released,...but here's hoping!
Daniel Habtemariam
It is slightly more interesting to search for the keyword "unemployment" across all categories.
Also, even if relative search volume tails off it doesn't mean those people got jobs. Perhaps they lost their internet connection like my friend did because he can't afford it.
Regardless, this is fascinating (and addictive) search technology.
Is there a way to do regional or local searches?
Post a Comment