Google Trends as Economic Indicator?

Lawrence Summers, a top economic adviser to President Obama, used Google search trend data for the search term "economic depression" as an economic indicator. Summers claims that "confidence and hope are returning" to the American economy because "hits [on google] for economic depression have returned to baseline levels." Summer is not very clear about when the baseline was established. By looking at the Google trend graph I will assume that the baseline to which he refers was established in mid-2008 when searches for the term "economic depression" "were up fourfold from their pre-crisis levels."

Summer's correct that searches for "economic depression" have dramatically declined since January 2009 but does that mean that confidence has made a comeback? I could easily come up with other plausible reason for this trend change.

Here is a list:
1. We now know what economic depression is we no longer need to Google it.
2. The weather is nicer and therefore we spend less time online and more time outside.
3. Too busy searching for jobs.
4. Too busy watching Michael Jackson videos.
5. Swine flu searches.
6. Iran blew up.
7. Pirates

My list is really a partly a joke but feel free to add to the list. I am curious what you think could have distracted us from "economic depression."

Summers could make the same claim about the Google News Reference Volume (the bottom graph). Were there less news stories in Google News because the economy was improving therefore journalists wrote less? Did we search less because we saw fewer stories about economic depression?

If we are going to use weak evidence, look at the number of articles from between 1920 and 1938 according to Google that use the phrase "economic depression." From 1932 to 1933 the number dropped by half then continued to decline for the decade. Does that mean the depression ended in 1932?

Should one of the top economic policy advisers to the President be using such weak evidence? I don't think so.

What do you think? Sphere: Related Content