Apr 7, 2008

Recession Times- What does it mean?

Googling the Recession

The problem with a recession is that due to a lag in the data, you may not know you're in one until it's over. The most interesting aspect of the "R" word as it manifests itself in the form of Internet searches is that despite all of the media attention focused on our worsening economy, most consumers don't understand exactly what a recession is.

I'll admit that even I had to look it up. What I found is that a recession is most commonly defined as two consecutive quarters of decline in gross domestic product (or GDP). In researching this column, I was surprised to discover that consumer spending represents over 70% of gross domestic product. This struck me as ironic because, according to Hitwise search data, consumers searching for "recession" are not even clear on what the term means: they're searching for the definition of "recession," just like I had.

In recent weeks, 24.9% of those searching the term "recession," continued on to Wikipedia.org, while 9.7% visited the educational site Howstuffworks.com. The most common searches for "recession" over the same time period included the terms "recession definition," "what is a recession" and "define recession." In just the last few weeks however, a new term has been rising quickly in the recession list: "surviving a recession." Despite an increase in these kinds of searches, our attention span for looming economic troubles remains remarkably short-lived.

On the week ending January 26, 2008, when the Dow Jones Industrial Average fell by 200 points after the Federal Reserve's interest rate cuts failed to kick-start the economy, the surge in searches for "recession" increased two-fold over searches for the term in the prior weeks of 2008. But as with searches for "gas prices" and "foreclosures," our concerns over the news was ephemeral. By the following week, those same searches decreased by 67%.

But if the bulk of Internet searches during that period focused on what a recession is, one might assume that the spike in these kinds of searches was driven by media coverage of the topic. Searches focused on "recession" may not be the best indicator of an economy in trouble. If we compare searches that contain the term "cheap," "discount" and "budget" during the same time period we might have a better understanding of consumer's economic sentiment.

When we compare searches that might be indicative of price consciousness, searches that contain the term "budget" have increased 4% when compared with the same week last year, while searches for "cheap" and "discount" are actually down 13% and 7% respectively, indicating that consumer concern may not be as great as assumed.

The real indicator might lie in aspirational searches, or those queries for things beyond most consumers reach. Searches for "Ferrari" are down 40% from the same week last year.

The question of whether we are truly in a recession will have to wait for months. Until then, we'll continue with our daily lives, while daydreaming less about that red Ferrari. Source - Time