What We Are Thinking (WWAT?)

• For the fourth time in three months, we're thinking 'Deflation'
• The 'soft patch' got us thinking about Recession/Depression, but the gloom is lifting slightly
• We're watching China, and averting our gaze from the Eurozone

Here's an update on how the world economy is thinking about itself, as revealed in the pattern of Google searches. Google Insight allows the diligent researcher to track daily the relative frequency with which particular terms are searched for, in particular categories. For example, one can search for how often 'inflation' is searched for in the 'finance' category. I've used this data to contrast different pairings of search terms, in the hope that the result will provide another way of tracking what the industry is fretting about at any particular time. All the results here are smoothed to a 10-day average.

First, I compared 'inflation' with 'deflation'. What is immediately obvious is the extreme volatility since May – we've swung between preoccupations with inflation and worry about deflation. During early and mid-May there was a spike in relative interest in deflation, which was knocked out in late May only to reappear again in mid-June and again early July. Almost certainly, we're entering another spike in deflationary interest right now. My guess is this is good for US Treasuries.  

Second, I looked at 'Growth' and 'Recovery', compared with 'Recession' and 'Depression'. This is a significantly less volatile series. The slump in late-May, early-June coincides neatly with the downturn in the world's economic data tracked by my Global Shocks & Surprises, as does the subsequent and partial recovery in interest in 'growth'. Unlike the 'inflation vs deflation' data, there's no sign (yet) that we're entering another period dominated by interest in 'recession' and 'depression'.

Finally, I looked at 'China' vs 'the Eurozone'. And this is a surprise: although the Eurozone's slowly-emerging disaster never looks less than potentially devastating, it's been going on so long now, it appears we're bored stiff by it. Or maybe it has become one of the problems so ghastly that the world's collective mind would rather puzzle over something else. China, for instance. At the moment, for example, the financial world's mind is far more interested in what's going on in China than in the Eurozone.