Media, Economic Activity and Macroeconomic Expectations

We construct indices based on newspaper mentions of a simple and repeated message (the word ``recession'') and show that they are useful coincident and leading indicators of U.S. economic activity, both in-sample and out-of-sample. Finance-specialized newspapers perform better than nonspecialized ones in forecasting economic activity, indicating how narratives might spread. Importantly, media coverage can affect individual expectations and economic decisions in the Michigan Survey of Consumer Expectations, and is correlated with Google searches for the word ``recession''. Our results provide evidence on how economic narratives might spread and affect actual economic decisions and therefore be important in understanding economic activity.