The Predictive Power of Twitter

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Twitter Inc. may not be the ideal platform to launch a presidential campaign, but the social media giant remains a potent force in the world of economics.

Two new papers by Federal Reserve researchers have found that Twitter can help forecast changes to interest rates and is useful for tracking shifts in the job market. The findings couldn’t come at a better time: Investors continue to scramble for real-time data to understand the US economy that, so far, has defied predictions for a recession.

In their work, a group of Fed researchers created a measure of credit and financial market sentiment built from Twitter’s 4.4 million tweets relating to financial markets dating to 2007, which they say can help forecast changes in the stock market and the stance of monetary policy.

The Fed’s Twitter Financial Sentiment Index uses natural language processing on the social media platform and correlates with corporate bond spreads and other price and survey gauges of financial conditions. Shifts in sentiment are a gauge for where policy is headed. The researchers write:

“Most notably, we show that the index contains information that helps forecast changes in the US monetary policy stance: a deterioration in Twitter financial sentiment the day ahead of an FOMC [Federal Open Market Committee] statement release predicts the size of restrictive monetary policy shocks. Finally, we document that sentiment worsens in response to an unexpected tightening of monetary policy.”

In a separate paper, another group of Fed researchers created an indicator of job losses pulled from Twitter data, which they say gives insight into the labor market ahead of official gauges. They add that Twitter insight into the labor market was especially strong during the pandemic-driven recession.

“We show that our Twitter-based measure of job loss is well-correlated with and predictive of other measures of unemployment available in the official statistics and with the added benefits of real-time availability and daily frequency,” the researchers wrote.

Economists were broadly receptive of the research findings, saying Twitter could fill a gap left by regular data that can lag developments in a period where investors crave rolling updates.

But they had caveats.

“For real economic analysis, the Fed paper on measuring labor market strength is definitively useful,” says Jerome Haegeli, chief economist at Swiss Re, who previously worked at Switzerland’s central bank. “The paper on Twitter-based financial-market sentiment I find much less useful. I fail to see what informational advantage you gain which is not already in market prices, either in spot or the forward space.”

Janet Mui, head of market analysis at Brewin Dolphin, says Twitter searches for a specific stock, for example, could be a useful indicator of sentiment, as could the number of users and data generated from daily engagement and how that relates to consumer activity.

“This is similar to things like restaurant booking data during the pandemic or the ‘Pret’ index to track return to office traffic. It is a good, high-frequency insight in addition to the analysis of official data,” she says, but she cautions that social-media-scraped data needs to be viewed alongside official readings.

Still, perhaps the biggest takeaway from the Fed papers is that, for all the turmoil at Twitter, the platform remains central to the economic debate.

“I believe more focused data, especially survey data, is still needed,” says Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA. “Although there is surely a future to using Twitter.” —Enda Curran, Bloomberg reporter

Google’s Anticlimax

Over the past couple of years, a pair of lawsuits regarding Section 230—part of the 1996 Communications Decency Act, the piece of the law that shields online companies from content posted by users—have been wending their way through the courts. One person has been thinking about it every day for the past year: Halimah DeLaine Prado, general counsel of Google.

Now, with the US Supreme Court punting on both decisions earlier this year, leaving Section 230 in place, it seems Prado can exhale slightly. But as this profileEmily Birnbaum shows, it doesn’t mean her days are filled with leisure:

While the case was moving through the courts, DeLaine Prado warned publicly that an adverse decision could lead Google to begin preemptively removing a wider range of content from its YouTube video site. In an hourlong interview with Bloomberg Businessweek at her office shortly before the decision was announced, she explained how she’d pushed the company’s litigation and public policy teams to coordinate with activists who favor an open internet and with smaller internet companies to file amicus briefs explaining how they could be harmed if Section 230 were narrowed. “What Halimah did throughout the whole process, which I really appreciated, was broaden it beyond YouTube and Google,” says Neal Mohan, YouTube’s chief executive officer. “It’s about the impact of this case for the open internet that we’ve all appreciated for the last couple of decades.”

More than 45 digital-rights activists, companies and tech groups ended up filing briefs in support of Google, and these seemed to resonate with the justices during oral arguments.

The issue could soon be back in front of them. Lower courts have offered conflicting decisions on controversial Republican-backed laws in Texas and Florida that prohibit social media companies from “censoring” political speech, with potential implications both for the First Amendment and Section 230. Legal experts say Google’s recent victory suggests it has a good chance of getting through those cases without any new restrictions on its content moderation decisions. Still, DeLaine Prado says, she lives in a constant state of low-level anxiety.

What’s next for the lawyer leading 1,400 other lawyers at the tech giant? Funny you should ask. It’s AI. Read the whole story

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