If you can predict the future better than other people, you will soon become rich.
If you can know better than other people what is happening right now, that is almost as good. After all, if no one else finds out the truth until a month after the fact, the present might as well be the future — nobody knows it.
For instance, many economic indicators move markets: reports about the unemployment rate, crude oil inventories, etc. All of these are lagging indicators. They report information well after the actual events have occurred. If you can predict the reports ahead of time (and you know how the markets are likely to react to the number in the indicator), you can front-run the market.
I’ve always thought that traffic delays might be a good predictor of current economic activity. If the roads are clogged at rush hour, that is a good sign for economic activity. Busier highways in late morning and early afternoon is probably a bad sign. I’ve never managed to track down the right data to test this hypothesis. It was just too much work.
As with so many other things, Google provides a better way to solve the problem. Hal Varian‘s excellent piece (summarized on the Google research blog, through which you can get the full report) explores how you can substantially improve the predictive ability of forecasting models by using information in Google Trends. It could hardly be easier — certainly much easier than trying to monitor traffic data from 200 different U.S. cities.
Of course, the fact that it is easy is bad news for anyone who wants to profit from it. If things are too easy, everyone can build it into their models, arbitraging away the value.
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This twigs as related to an article in the Toronto Star yesterday…
http://www.thestar.com/News/Insight/article/617149
… and the earlier trigger in The Economist…
http://www.economist.com/finance/displaystory.cfm?story_id=13415223
… where it’s mentioned that you can estimate the shadow economy by comparing the measured economy to electricity consumption. The shadow economy might not report, but it still uses power.
I wonder if Google has search term usage that corelates to various types of economic activity?
On a similar note, I once recall someone from Google noting that when a local power blackout happens, it takes 10 to 15 minutes to get the very first news report – but the very first web searches start arriving in about 15 seconds.
There are people who have real time data on the economy.
Any issuer of credit cards knows in real time what consumer behavior is.
Any large national retailer (say Walmart) also has the means to know in real time what consumers are doing.
A bank with commercial clients knows how much money the businesses are depositing and paying out in real time and they know what types of businesses are experiencing what impacts.
“On a similar note, I once recall someone from Google noting that when a local power blackout happens, it takes 10 to 15 minutes to get the very first news report – but the very first web searches start arriving in about 15 seconds.”
Makes sense with battery backups and laptops and cable enabled internet. And who would care most about a power outage but someone using technology…
Actually the dropping motto appears to be an April Fool’s joke… great the Internet you can still be a fool on 1 May!! However, joking aside they have seemingly removed it from their company site. Still looking.. will update.
Confirmed. Google have not dropped their informal “Don’t be evil” motto.
http://investor.google.com/conduct.html
I am an April fool
Confidence is restored 
Maybe too long? My post was too long.
That is a very interesting thought Steve, regarding traffic volume as an indicator of economic activity. I have never heard that before. I bet you are right, on most days, when accidents and breakdowns are not greater than average. Actually I bet that the number of accidents would be a fairly good indicator of the volume of traffic. You can see it now on morning traffic shows… “Hey the current economic indicator this morning is 2.3″
Nice idea, someone will have the traffic data set, however the point is…. Google.
In response to Joe Smith’s comment.
“There are people who have real time data on the economy… Any issuer of credit cards knows in real time what consumer behavior is.”
So do you Joe, we all do. twitter, Google, stock market realtime values, etc. However there is no organisation on the planet that matches Google when it comes to being able to process and analyse data. That gives Google the edge over everyone.
Pervasive comptuing will lead the for this. the next step will be real time, dynamic relationship montitoring from RFID sources etc. Could be the next Bloomberg revenue model. Subscribe to our real time RFID data feed for forecasting and modelling. Kind of like the Twitter style, real time conversation search an metrics available now. A mix of long, short and real time would give some good compartitive tools.