keep on googling…

It is now the end of June, so I figure it’s time to update the Google “unemployment benefits” data – to see what the full month tells us.

The story is basically unchanged, in seasonally adjusted terms searches for unemployment benefits declined a little in June. Historically, this has been a reasonable guide to the official ABS unemployment data (released 7 July).

As it stands, the data suggests that the unemployment rate will remain ~4.9% in June. This would not normally be news, except that the Aussie short end has been flirting with rate cuts (and the equity guys are talking “recession outside mining”).

The BoE used an AR framework for their out of sample test, but I dislike those for my purposes as they tend to lag at turning points: if you want to make money, you need to have an idea when the data is turning.

I prefer a simple OLS — I start in Oct’01, when I have 20 observations, and forecast the current period unemployment rate using the google search data (which we have at month end, giving us a lead of a week or so). I then increase the history by one observation (so next using 21 pairs) , re-estimate and forecast the next period (step two is Nov’01), and so on …

This method predicts the increase in the unemployment rate in Q2’08, and the predicts the peak (a little early) in Q1’09.  In both cases, this was early enough to make large in AUD fixed income markets.

Aside from predicting the unemployment rate, the search data also gives us interesting colour on who’s searching. The pain in Qld is clear – as the very large gas investment projects come online in H2’11, we should see that ease back a little.

Finally, google correlate allows see what unemployed Aussies do with their spare time — by uploading the data and letting google find the best match —

— apparently we are into “piercing pictures”…  or something boring about spurious correlation and the importance of theory (note the recession in piercing picture searches suggest the unemployment rate has further to fall!).

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3 Responses to keep on googling…

  1. Richard Cheese says:

    Fantastic piece, a very novel perspective on employment.

  2. Andrew says:

    The relationship is not at all spurious. The economics school at Sydney was recently relocated to the arts department, which has allowed me to make a few observations about unemployment and about piercings:

    People who are unemployed tend to have more piercings than their employed counterparts.

    Partly this is an aggregate supply correlation: piercings make you less employable, ceteris paribus, reducing the pool of employable amongst job-searchers. (I.e. causation runs from piercings to unemployment.)
    Partly it is an aggregate demand correlation: the opportunity cost of getting a piercing is lower for those who are expecting to remain unemployed for some time. (I.e. causation runs from unemployment to piercings).

    Both make piercings and unemployment procyclical with each other and countercyclical to the state of the economy. Yet to run a Granger-causality test…

  3. The Lorax says:

    I reckon the employment numbers will disappoint the bulls (again), and unemployment will tick up a smidge, and they’ll all push their rate hike forecasts out (again). But the data is so noisy anything is possible.

    One thing’s for sure, if there’s the slightest hint of strength the bullhawks will all be out in the media demanding rate hikes yesterday.

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