Your Google search or a tweet about your job is part of a vast trove of private economic information that might help Federal Reserve Chairwoman Janet Yellen and her colleagues get a more complete picture of where the economy is headed.
Economists at the Fed are looking into whether nontraditional data could improve the accuracy and timeliness of the forecasts they put before monetary-policy decisionmakers about every six weeks. First, though, they want to be satisfied about the quality and reliability of the information.
The project comes as digital information about the economy is exploding. Companies post billions of prices online for everything from milk to haircuts, and households query Google Inc.’s search engine for the best mortgage rates or car deals. Retailers also collect billions of pieces of information about consumer preferences by capturing data every time a customer swipes a membership card at a grocery store or shops online.
For Fed economists, “the aspiration is to be sure we are aggressively pushing the envelope in putting in front of policymakers as accurate a picture of the economy as best as we can understand it,” David Wilcox, director of the Fed Board of Governors’ Division of Research and Statistics, said in an interview last month.
Current forecasting methods have their shortcomings. The economy is constantly shifting, eluding economic models that assume fairly predictable responses to low interest rates or low gasoline prices.
Fed officials don’t foresee private-sector data replacing their use of U.S. government statistics on everything from inflation to how workers flow in and out of the labor force.
The goal is to shorten “the time lag between what is happening and what your understanding of that is,” said David Stockton, the Fed’s former chief forecaster who is now a senior fellow at the Peterson Institute for International Economics in Washington.