Measuring Real‐Time Economic Condition With Economic Narratives

To track real economic activity in a timely manner, we construct a Narrative Daily Economic Condition Index. The economic narratives from the full text content of one million Wall Street Journal articles are decomposed into interpretable topic time series. The resulting indicator captures the business cycle and the movement of economic output measures well. The empirical applications show that the resulting indicator captures real‐time economic fluctuations and contributes to predicting market volatility and interest rates, which can significantly benefit real‐time policy making and investment decisions. Our results highlight the informativeness and timeliness of economic news for assessing the state of the economy.