After millions of words, I never expected my life’s work to be reduced to an economic indicator. Yet that’s what it has come to, according to researchers at Australia’s central bank. And you can blame Covid-19 for this, as well.
In their quest to gain better and more timely insights into the economy, economists Kim Nguyen and Gianni La Cava of the Reserve Bank of Australia have constructed a “news sentiment index,” or NSI, from articles about the economy in major papers Down Under, Bloomberg reported this past week. They posit that news accounts not only provide a real-time indicator of the economy, but also have some “causal” role (their word, not mine) in shaping sentiment among businesses and consumers.
Amid the barrage of accusations about fake news and worse, some would say that what we report would qualify as a misleading economic indicator. So it was surprising, but heartening, to learn that the researchers view journalists’ work as important. Their NSI also seems like an example of analysts trying to construct innovative gauges of the economy as it undergoes rapid and unprecedented change that traditional economic indicators can pick up only retrospectively.
Technology has provided a wealth of real-time information that would have been impossible to acquire just a few years ago. Aggregated smartphone data from Apple and Google show where we were going—and weren’t—in the Covid economy, writes Northern Trust Senior Economist Ryan James Boyle in a research note. Platforms such as Homebase track hours worked at small businesses, he adds, while Indeed carries job postings. Open Table shows restaurant reservations, while the Transportation Security Administration tracks airline traffic, and credit cards disclose consumer spending.
And the World Uncertainty Index tracks its namesake factor by keeping count of mentions of the word “uncertainty” and synonyms for it in mainstream news outlets, Boyle adds. Not surprisingly, the count remains elevated, although down from the peak reached earlier this year.
The Australian indicator is constructed by subtracting the number of negative words in articles it scans from the positive words, then dividing the difference by the total of words.
But the Aussie researchers suggest that their NSI news sentiment gauge is a better indicator of current economic conditions than news uncertainty is.
Flattering as it might be to think that these scribblings are influential, experience says that humility is more appropriate. As wizened observers of financial matters say, markets make the news, not the other way around.
For their part, the major stock market indexes ended on Christmas Eve just a fraction of a percent shy of their records, despite the unfortunate news of the uncertainty abruptly wrought in Washington when President Donald Trump suddenly refused to go along with the $900 billion fiscal-relief package hammered out over months by congressional Republicans and…
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