Amidst a slowing local economy, Yelp’s economic
measure identifies five outlier boomtowns
Yelp Inc. (NYSE: YELP), the company that connects people with
great local businesses, today released second quarter data for the
Yelp Economic Average (YEA), a benchmark of local economic strength
in the U.S. The report finds a sluggish local economy, as well as
five metros that have bucked the national trend due to growing
development. YEA is calculated from the fourth quarter of 2016,
nationally and for 50 metros, reflecting data from millions of
local businesses and tens of millions of users on Yelp’s
platform.
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Yelp Economic Average (Graphic: Business
Wire)
The YEA ticked down by 0.2% from the first quarter of 2019 to
99.2, reversing a brief and modest recovery. YEA grew with the
economy in 2017, but is now down 2% from its peak and has been
performing below its baseline level of 100 for the past three
quarters. According to researchers, Yelp provides a timely and
accurate measure of a huge swath of the economy that is often
missed by many major indicators. The YEA measures strength using
two signals: business survival and consumer interest. The opening
of new businesses and an increase in consumer engagement both boost
the YEA.
“The U.S. economy is setting new records every month for its
longest ever recession-free streak, but Yelp data about the Main
Street local economy may be showing warning signs,” said Carl
Bialik, Yelp’s data science editor. “Currently below 2017, the Yelp
Economic Average shows a cooling brick-and-mortar economy across
the U.S. that’s signaling a potential slowdown in consumer demand
and business growth.”
Five Boomtowns Have Struck Gold in Development
The cities of Honolulu, Hawaii; Louisville, Ky; Memphis, Tenn.;
Milwaukee, Wis.; and Portland, Maine had the country’s strongest
combination of business growth and consumer demand, according to
the YEA analysis across 50 top metros around the country. These
cities grew in the second quarter of 2019 primarily due to real
estate related business — agents, lawyers, services — indicative of
a boom in development, sometimes aided by permissive local
laws.
Development is among the factors driving growth in the five Yelp
boomtowns, the fastest growing metros since our measurement of
their local business health began in the fourth quarter of 2016.
Milwaukee, Wis. is benefiting from hosting privileges for next
year’s Democratic National Convention, and a new NBA arena.
Developers are scrambling to meet demand for downtown housing in
Memphis, Tenn. And Portland, Maine is drawing people from out of
state, driving up residential permits.
Meanwhile, some of the most sluggish local economies are wealthy
metro areas on the West Coast that have resisted development amid a
national debate about how much to build: Portland, Ore.; San
Francisco, Calif.; and San Jose, Calif. all are among the bottom
five metros for growth.
Other Key Findings from the Second Quarter
Beyond the slowing brick-and-mortar economy, and boomtowns and
laggards, other patterns emerged in the second quarter. More
Americans were relying on paid professionals to clean in the second
quarter — including their cars, clothes, carpets and homes.
Americans also sought out their local watering holes with gains in
lounges, pubs, and sports bars. And more of them passed on dessert,
with a dip in results for businesses selling donuts and ice
creams.
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Methodology
The Yelp Economic Average (YEA) is a composite measure of the
economy, reflecting both business health and consumer demand among
businesses in 30 sectors.
The eight root categories
The 30 business sectors, or categories — the “Yelp 30” — are
drawn from eight umbrella business categories on Yelp: restaurants,
food, nightlife, local services, automotive, professional services,
home services, and shopping.
Root categories’ share of the 30 components
The share of YEA components from each of these eight categories
is based on each one’s share of the economy, as estimated from
County Business Patterns reports.
Choosing the Yelp 30
Each of the Yelp 30 is chosen based on maximizing four criteria,
relative to other candidates within its family of categories, as
measured in the first quarter of 2016:
- Number of businesses on Yelp in the category;
- Consumer interest on Yelp for businesses in the category;
- Number of the 50 metro areas — whose economic health Yelp has
been measuring for a year and a half, originally as part of the
company’s Local Economic Outlook — in which the category is
present;
- Uniform spread across the four Census Bureau-defined regions of
the country.
Choosing baseline categories
Yelp’s data science team then chose baseline categories against
which to compare the fortunes of the Yelp 30. This step helps
remove changes due to seasonality and Yelp’s internal growth; what
remains is a reflection of real economic patterns. The team
selected all other root categories not represented by the YEA
components as baselines because they provided the most robust
controls against seasonality and activity on Yelp.
Calculating the YEA scores
For each of the Yelp 30 in each quarter, its two scores — one
for business population and one for consumer interest — are
calculated as follows:
- Count the component’s total for the quarter;
- For consumer interest only: Count the baseline’s total for the
quarter;
- For consumer interest only: Divide the component’s total by the
baseline total to get the component’s score;
- Divide the component’s score for the quarter of interest by the
component’s score in the equivalent quarter in 2016 — comparing,
for instance, the fourth quarter of 2018 to the fourth quarter of
2016, to adjust for seasonality;
- Multiply by 100 to make 100 a typical score.
Then the two scores are normalized to have the same variance, so
that each contributes equally across components.
To reduce the effect of outliers, the overall score for both
consumer engagement and business count is the median of each
component’s score.
The YEA is the mean of the overall consumer engagement score and
business-count score.
The YEA is separate from, and not meant to inform or predict,
Yelp's financial performance because our figures are adjusted to
remove the effects of changes to usage of our product.
Yelp calculated equivalent scores at the regional and metro
level to provide a local look at the state of the local
economy.
About Yelp Inc.
Yelp Inc. (www.yelp.com) connects people with great local
businesses. With unmatched local business information, photos and
review content, Yelp provides a one-stop local platform for
consumers to discover, connect and transact with local businesses
of all sizes by making it easy to request a quote, join a waitlist,
and make a reservation, appointment or purchase. Yelp was founded
in San Francisco in July 2004. Since then, Yelp has taken root in
major metros in more than 30 countries.
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version on businesswire.com: https://www.businesswire.com/news/home/20190725005249/en/
Yelp Inc. Kathleen Liu press@yelp.com
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