Forecasting unemployment using Internet search data via PRISM
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Big data generated from the Internet offer great potential for predictive analysis. Here we focus on using online users' Internet search data to forecast unemployment initial claims weeks into the future, which provides timely insights into the direction of the economy. To this end, we present a novel method PRISM (Penalized Regression with Inferred Seasonality Module), which uses publicly available online search data from Google. PRISM is a semi-parametric method, motivated by a general state-space formulation that contains a variety of widely used time series models as special cases, and employs nonparametric seasonal decomposition and penalized regression. For forecasting unemployment initial claims, PRISM outperforms all previously available methods, including forecasting during the 2008-2009 financial crisis period and near-future forecasting during the COVID-19 pandemic period, when unemployment initial claims both rose rapidly. PRISM can be used for forecasting general time series with complex seasonal patterns.
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