Friday, October 16, 2009

Is it GE or Google as proxy for US economy? The role of Search in being a leading indicator!

We know that the best way to understand the state of US economy is by looking at GDP . It wasn't long ago, probably two to three years back, when GE was unanimously considered as proxy for US economy. It was always most diversified company as its businesses spanned from entertainment, medical devices, energy, locomotives, equipment, infrastructure services to finance. It always remained among the leaders in revenue and market capitalization. Unfortunately, it has fallen out of favor in last two years because of its average performance across the board in most of its businesses. It is no longer a leader in market cap. also. The result of all of this is that GE is not considered as a proxy for US economy or their sales pipeline as one of the leading indicator of economy.
I will leave it to economists to debate what is a true economic indicator but recently, Google has started claiming that its search patterns are saying that economy is recovering.  Basically, Google's chief economist says that he can tell the direction of economy from American's search habits.

For e.g Google is seeing following trends:
  • Decrease in searches for unemployment benefits
  • Increase in searches for homes and real estate agents
  • They also showed an early spike in government "cash for clunkers" program.
There can be million other search trends which they might have analyzed or modeled! It seems lot of people are already listening! Well, the part of the reason can be that it wasn't long ago when Google's market cap. became more than GE!
You can always disagree with Google's claim and argue that a  search for "property prices in a neighbourhood of Las Vegas" shouldn't be interpreted as recovery sign. Maybe, the person is trying to to sell the house! In the end, it is very difficult to interpet the true motive from few key words in the search. After all, economic forecast is a serious business and econometric modeling it is a very complex thing!

I think that we will continue to see this trend in future where "search on the web" will continue to indicate at least partially where the economy is heading. As search on the web moves from "keyword search" to more advanced "semantic search", we will have better  idea about the intention of the query.

If we can analyze the "query intent" then we can build better models also. We also have to take into consideration the search patterns from Yahoo, Bing and other search engines to have a complete picture. I will still not dismiss off leading indicators from GE as it remains a great company despite a plunge in its stock value.

1 comment:

  1. Very valid claim by Google - search patterns can indeed be used as an indicator on economy direction. With search engines integrating "query intent", this analysis will be more to the mark.

    Semantic Search is going to have a really diverse uses by making the search results more meaningful.