Google Predicts End of Recession?

Google (NASDAQ:GOOG) has recently been touted in the media for the company’s accuracy in displaying real time infection data for H1N1 (Swine Flu). If you go to Google Maps there is an application that tracks the number of people searching for symptoms for the illness. It’s pretty amazing that the graphical representation of this data in real time has been shown to be spot on with data collected by the world’s health authorities who take over three months to compile, analyze and plot their data. The H1N1 tracker in Google is a huge leap forward for the health crisis management effectiveness in the world and you can even zoom right down to see which parts a single city are reporting cases.
So Google can display where people have the flu, how does that predict the end of the recession?

It doesn’t.

The tool that Google does have however is an intimate understanding of advertisement spending. You see, there have been a number of studies undertaken that suggest that web advertising is a leading indicator of the end of a recession. The other interesting thing about some of these studies is that they also claim that Google Adwords (For Advertising) and Google Adsense (For Publishing) are also laggards to the recession. Basically, businesses turn off their online advertisements last and also turn them back on first.

You may have noticed that Google recently reported the company’s third quarter results and advertising was up. This much cannot be said for rival Yahoo (NASDAQ:YHOO) who reported profits up from major cost cutting while revenues continued to decline; however, that’s another storey. Google on the other hand is predicting even more growth in the coming years as well—in 2004 online advertising was $18 billion and by 2013 is expected to top $87 Billion according to PricewaterhouseCoppers.

Simple ways to tell Ad revenues are likely up:

Method 1) Go on Google Adwords and bid on a set of key words. The interesting thing here is that you can search keywords for specific industries to see if ad spending is up.

For example take the Financial Sector:

Keywords to search: Investment, finance, investment advice, stocks, bonds, etf, mutual fund, insurance, savings account, banking, bonds, forex, etc.

Now track the results over a series of time and you can chart and trend that information to predict stock market movements for a single sector or an index like the S&P 500, NYSE, or TSX.

Method 2) If you are a publisher like I am, take a look at your Google Adsense earnings. Compare your average costs per click (CPC) conversions to determine if your average CPCs are increasing or decreasing. This is another easy way to tell if ad spending is on the rise or fall.

Obviously this is not a full proof method to play the stock market; however, it does present an interesting new tool to add to the tool belt and may help reinforce some market expectations and forecasts.

Give this method a test run and let us know at Investing in Canada what your results are like. It should be an easy system to track with an excel spreadsheet.