Is Another Recession On The Horizon? Google Search Data Offers Clues

By January 2008, it was clear that something was deeply amiss in the global economy. The unemployment rate was creeping upward. The Federal Reserve had slashed interest rates by the largest amount in 25 years. And financial markets around the world were tumbling.

The growing list raised a natural question: Are we in a recession?

To find out, many Americans typed a simple query into Google: "recession 2008." It was a more useful search term than plain-old "recession," which returned a lot of Econ 101 stuff about definitions and history. "Recession 2008," by contrast, served up page after page of recent articles about what was happening right now.

As it turned out, 2008 - in the heart of the Great Recession - was a banner year for people searching for current-year recession information, according to Google Trends data. There was no equivalent in prior years, and in the years since - the longest expansion in U.S. history - Googled recession anxieties have never matched the heights reached in January 2008.

Last month, however, that all changed, when the level of current-year recession searches for the first time surpassed the numbers seen during the Great Recession. The spike was probably driven by news of an inverted yield curve, a classic signal that a recession is on the way.

Other recession-related Google searches revealed similar patterns. "Recession signs," "recession indicators" and "recession investments" all rose to levels not seen since the 2007-2008 recession. Although economists continue to rely heavily on traditional indicators such as Treasury yields, gross domestic product and confidence indexes to read the recessionary tea leaves, some experts are looking to incorporate newer data sources, such as Google searches, to glean even faster insights into the health of the economy.

Some analysts, for instance, have been using search terms such as "unemployment" and "coupon" to suss out future recession probabilities. Google's chief economist, Hal Varian, has noted correlations between searches such as "social security locations" and "unemployment office" and recessionary factors.

The big challenge in crafting useful real-world predictions out of Google searches is that, methodology-wise, economists are starting from scratch. There's a ton of uncertainty between the words typed into a search engine and the real-world circumstances that prompted that query.

If a person simply types in "recession," for instance, what does it actually mean? Is it a student looking for sources for a term paper? A worker worried about his job prospects? Somebody noodling around on the Internet, following Wikipedia rabbit holes? Someone just verifying how it's spelled?

Of course, there's plenty of margin of error around traditional forecasting methods as well. Writing in the New York Times recently, Neil Irwin presented the case against the inevitability of a recession, despite what the economic indicators say. If consumer spending remains strong, if the damage from the Trump administration's trade war with China is confined, and if the Federal Reserve gets aggressive on interest rate cuts, we may simply be headed for a "period of sluggish growth," rather than a full-on recession, Irwin writes.

Looking at the Google data, it's worth noting that current-year recession anxieties spiked in August 2011. That month, stock markets tanked on global recession fears, and the White House sought to soothe investor anxieties: "Markets go up and down," as then-White House press secretary Jay Carney told the New York Times. As we know now, a recession was ultimately averted and the U.S. economy continued trundling along at a modest pace.

One final note about the Google data is that as in 2008, in absolute terms, the volume of current-year recession searches remains quite low. Even during the height of the Great Recession, for instance, searches for "recession" did not manage to surpass the numbers for Kim Kardashian - a common benchmark used to gauge the absolute volume of a search term.

But the terms were close in overall volume then, and they are close in volume now. And if recession searches happen to surpass searches for Kim K. in the coming months - what an economist might call an inverted Kardashian curve - it might be time to buckle up.