A Leading Indicator of Unemployment?
Is there a way to forecast rising unemployment? Can economists predict a recession before it plunges the U.S. economy into chaos? Lars Christensen certainly thinks so.
Mr. Christensen is a famous Danish economist with two decades of experience in banking and government. He gained notoriety for predicting the 2008 financial crisis, particularly the one in Iceland. His blog, Market Monetarist, is widely read.
In a recent post, Christensen drew a startling correlation between Google searches and the labor market. His argument supposes that as the economy crumbles, more people Google the word “unemployment.” (Source: “‘Googlenomics’ predicts sharp rise in US unemployment,” Market Monetarist, February 4, 2016.)
It’s a simple idea, but a powerful tool for prediction, says Christensen.
In his Market Monetarist post, Lars Christensen reveals that searches for the word “unemployment” are rising faster than they were in 2008. The sharp uptick is apparently a sign of impending doom in the U.S. economy.
Source: Google Trends
But how does Christensen verify the relevance of Internet searches?
He cites a scholarly paper by two Italian economists. Both academics are highly qualified and work at the Bank of Italy.
They conclude that social media is a strong leading indicator of the U.S. economy. In particular, their paper suggests that Google searches can help forecast the unemployment rate. (Source: “The Predictive Power of Google Searches in Forecasting Unemployment,” University of Barcelona, last accessed February 4, 2016.)
Lars Christensen goes on to criticize the recent rate hike from the Federal Reserve. He suggests that Janet Yellen begin monetary expansion to ward off surging unemployment. According to him, further stimulus is needed.