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The popularity of certain web searches tracked by Google over time––defined as the proportion of searches on a particular topic in the total number of searches in a country–– is correlated with real economic activity. |
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Query indices of Google Insights for Search––which are by their nature available in real time––show predictive ability with regard to employment, trade and services revenue (mainly tourism and sales of durables), and consumer confidence. |
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Unlike in the US, where the indices help in predicting developments in major areas such as automobile sales, in Israel there is no evidence of such a connection, apparently because in Israel the use of the internet as a means of purchasing goods is less widespread. |
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The query indices can contribute to the operative assessments of the economic situation by the central bank before the official data are published by the Central Bureau of Statistics. |
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In the last few months the query indices in Israel point to a reduction in the probability of a slowdown; that conclusion is based on the moderation of the decline in private consumption. The indices do, however, indicate a steep increase in unemployment in the second quarter of the year, to more than 8 percent. |
| Research undertaken by Dr Tanya Suhoy of the Bank of Israel Research Department examines the predictive ability ("nowcasting ") of Google query indices relative to the official rates of change in manufacturing production, business sector employee posts, trade and services revenue, services exports, consumer goods imports, and apartment sales in Israel, based on a sample of monthly data between January 2004 and February 2009. Six categories of searches were found that provided leading information: Human Resources (Recruitment and Staffing), Home Appliances, Travel, Real Estate, Food and Drink and Beauty and Personal Care. |
| According to causality tests, the strongest predictor is in the Human Resources category (Recruitment and Staffing). The latter, taken at a quarterly frequency, is a leading indicator with regard to the job openings ratio, and consequently may help in drawing monthly inferences about the unemployment rate. The variable that can be most successfully predicted by means of Google query indices is the change in the number of employee posts in the business sector. The query index for home appliances shows a statistically significant predictive ability regarding changes in the retail trade index (Figure 1) and in trade and services revenue. |
| Query indices were also found to help in assessing the development of the business cycle; specifically, it was found that they could have been used to predict the turnaround in real activity in 2008. The six search categories mentioned above showed that the probability of a demand slowdown decreased considerably in the last few months (Figure 2). |
