08/03/2012 05:45 EDT | Updated 10/03/2012 05:12 EDT

Online Search Terms Can Be Economic Indicators

Why would an economist care that internet searches using the term 'titanium dioxide' have been steadily rising in Canada?

As more and more economic activity moves online — Google estimates 93 per cent of Canadian consumers research online before purchasing something — interest is growing among economists in the insights to be gained from our choice of internet search terms.

If they can learn to interpret what our buying intentions are, what prices we're paying or whether we're trying to figure out how to apply for employment insurance, it could greatly improve their read on where the economy is headed.

That's because so much of the data they now use is dated.

"I'll give you an example," Doug Porter, deputy chief economist at BMO Nesbitt Burns, told CBC News.

"The May report for Canadian GDP just came out on July 31st. Basically two months after the month had ended.

"That's pretty typical for a lot of Canadian indicators."

Google provides its data in one to three days after users have done their searches.

"So anything we can get that offers more timely information is potentially a big help," Porter said.

In July, Google Canada decided to experiment a little to see what insights could be gleaned from our search terms.

"Google has the largest database of intentions on the planet," Google spokesman Aaron Brindle told CBC News.

"Every time you put a search query into that little box in Google, you're offering an intention."

"Determining exactly what those intentions are, is a fine science," Brindle admits, but with 4.8 billion Google searches in Canada last month, "we believe when you put it all together, you can glean some sense of where this economy is heading."

Its findings provided food for thought.

Searches for 'washing machine' and 'refrigerator' were at all time highs and 72 per cent more frequent than they were with the recession four years ago.

'Used car' searches had been in a steady decline and were 60 per cent lower than where they were in 2008.

Google's interpretation is that sustained low interest rates may be responsible for increased interest in durable goods and the dip in used car searches may reflect strong and sustained demand for new cars.

In July, searches for 'white paint' came in at twice as high as the same period in 2011.

Also, since peaking in 2007, searches for 'titanium dioxide', have also been steadily rising. Searches for this key ingredient in white paint are approaching their highest peak since 2008, according to Google.

White paint is widely used on durable goods. It is also a neutral colour potential home sellers would use before trying to flip their real estate investment to a buyer who might be put off by a more exotic colour.

But does increased interest in white paint show that manufacturers are responding to growing demand as consumers become more confident about their jobs and willing to spend?

Or does it show that people who have made speculative real estate purchases are trying to quickly sell before the bubble pops?

The question is how to interpret the data.

"We don't really have that much of a track record or history," said BMO's Doug Porter.

"You don't necessarily know why someone is searching for a particular item. It's going to take some time to sort out what the meaning of that potential wealth of data really is."

"You do have to be careful," said Google's Brindle.

But it is possible to do some basic analysis, at least. Brindle made that point while name-dropping a Google analysis program, Correlate.

Use that, he said, "and you'll notice that the most frequently searched term associated with 'white paint' is 'house sale.'"

"I think this data is valuable and I think economists are starting to recognize that value."

Central banks take an interest

Certainly central banks are. As far back as 2009, The Bank of Israel commissioned a study by senior economist Tanya Suhoy, which concluded that the information from searches "may be helpful" in tracking economic activity, given that it was fresher than data from government statistical agencies.

Similar interest has been expressed by the Bank of England, the U.S. Federal Reserve in the U.S. and central banks in Chile, Spain and Italy.

The Bank of Canada doesn't use internet search data in its economic analysis now. But spokesman Jeremy Harrison says it has done "some preliminary internal research to evaluate its use."

"We continually explore ways to supplement the information and data we do use to analyze developments in the Canadian and global economies," Harrison said.

Perhaps the greatest advantage to speeding up the read on economic direction would come during severe downturns, Porter suggests.

"During turning points in the economy, it would be very helpful. It would give us much better information much sooner and I think it would ultimately help policy. A good example of that would have been late 2008. That was probably the most dramatic change in the economy we've seen in quite some time."

"If policy makers had known that at the time," he said, "they could have been much more aggressive in some of the steps they were talking to help support the economy."