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Bank Counts on Google
The Bank of England has revealed in an article in its latest 'Quarterly Bulletin' that it is using Google 'Insights for Search' to gather information on the state of the British economy.
The article was written by Nick McLaren of the Bank's Conjunctural Assessment and Projections Division and Rachana Shanbhogue of the Bank's Structural Economic Analysis Division. The areas the bank is looking at include: unemployment, consumer spending and the housing market. In the article the Bank admits that the approach has 'some limitations', but goes on to give examples of where the data has been useful.
The writers cited monitoring trends related to unemployment by looking at the popularity of searches containing the terms 'JSA' (jobseeker's allowance) and 'unemployment'. The Bank's research showed that the 'JSA' search data was more accurate than a consumer survey asking people how they thought unemployment would change in the coming months. However, it was less accurate than the official claimant count data which is published the following month.
The advantage to the Bank is that the labour force survey (LFS), its current best measure for joblessness, publishes the first quarter figures (Jan - Mar) in mid-May - the Google data is much more current.
A second example tracked the term 'estate agent' which appeared 'to move more closely with house prices over our sample period'. According to the authors the Google search data, when correctly handled, gave a more accurate picture than other housing surveys.
However a third test which tracked searches for 'VAT' since 2003 was measured against the GfK consumer confidence survey asking whether shoppers feel happy to make a major purchase. The authors concluded that 'neither the consumer confidence survey nor the Internet data are able to explain the observed differences in consumer behaviour.'
Of the limitations the authors said: 'There is only a short backrun, there is no information on the actual volume of searches, and as the index is based on a subsample the backrun of data can change'. However they also wrote: 'Internet search data have the potential to be useful for economic policy making. As further developments are made in this area, and the backrun of the data increases, these data are likely to become an increasingly useful source of information about economic behaviour.'
The Bank has always used survey data and information collected by agents to predict movements in the economy. Of the move to include Internet data the report concludes: 'The Bank will continue to monitor these data as part of the range of different indicators it considers in forming its view about the outlook for the economy of the United Kingdom. As further developments are made in this area, and the backrun of the data increases, these data are likely to become an increasingly useful source of information about economic behaviour.'
The full article can be found at: www.bankofengland.co.uk/publications/quarterlybulletin/qb110206.pdf .
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