We at WealthCycles.com have used search trends as a proxy for unemployment numbers and deflation numbers before. Back in July, we used Google’s Unemployment Index to better understand the employment picture—which had been fiddled with to reduce unemployment by magically contracting the labor force by 600,000 workers. After July, the U.S. unemployment rose until November 2010—indicating that Google's index has some predictive power.
Google Search Insight is a tool that helps us understand what people are searching for, or where the herd is heading.
CNBC had an interesting video segment this morning on Google as an economic indicator featuring chief strategist Nicholas Colas of Covergex (video below). Colas says that using Google search trends can help you understand market sentiment, and he’s right. Understanding what people are searching for can give you a clear picture when markets or statistics (like unemployment) are potentially manipulated.
He says that “stock price” has received higher searches than this time last year, indicating the “wealth effect” that affects people when stock or home prices rise. But is this the whole picture?
Globally, “gold price” searches have risen much faster than “stock price,” and since 2007, “gold price” searches have been higher than “stock price” searches. From the beginning of 2007, gold has risen from $608.40 to $1383.50, a 127% rise, while the Wilshire 5000, which attempts to measure every publicly traded stock in the United States, has increased from 14,200 to 14,257, a 1.8% rise. It’s pretty clear what the herd is saying.
Below is a chart that shows Google search trends. We think these are important indicators, too—you just need to look at the big picture.