The predictive power of Google searches in forecasting US unemployment

Abstract

We assess the performance of an index of Google job-search intensity as a leading indicator for predicting the monthly US unemployment rate. We carry out a deep out-of-sample forecasting comparison of models that adopt the Google Index, the more standard initial claims, or alternative indicators based on economic policy uncertainty and consumers’ and employers’ surveys. The Google-based models outperform most of the others, with their relative performances improving with the forecast horizon. Only models that use employers’ expectations on a longer sample do better at short horizons. Furthermore, quarterly predictions constructed using Google-based models provide forecasts that are more accurate than those from the Survey of Professional Forecasters, models based on labor force flows, or standard nonlinear models. Google-based models seem to predict particularly well at the turning point that takes place at the beginning of the Great Recession, while their relative predictive abilities stabilize afterwards.