Can Google Searches Predict Economic Activity?
Yes, according to Google economist Hal Varian:
Can Google queries help predict economic activity? The answer depends on what you mean by "predict." Google Trends and Google Insights for Search provide a real time report on query volume, while economic data is typically released several days after the close of the month. Given this time lag, it is not implausible that Google queries in a category like "Automotive/Vehicle Shopping" during the first few weeks of March may help predict what actual March automotive sales will be like when the official data is released halfway through April.
Our work to date is summarized in a paper called Predicting the Present with Google Trends. We find that Google Trends data can help improve forecasts of the current level of activity for a number of different economic time series, including automobile sales, home sales, retail sales, and travel behavior.
MP: See chart above from the paper comparing monthly Ford vehicle sales and Ford Google Trends.
Here's an excerpt from the paper's introduction:
Google Trends provides daily and weekly reports on the volume of queries related to various industries. We hypothesize that this query data may be correlated with the current level of economic activity in given industries and thus may be helpful in predicting the subsequent data releases.
We are not claiming that Google Trends data help predict the future. Rather we are claiming that Google Trends may help in predicting the present. For example, the volume of queries on a particular brand of automobile during the second week in June may be helpful in predicting the June sales report for that brand, when it is released in July.