Amidst slight national growth, Yelp’s
Third-Quarter Economic Average finds California’s local economies
declining
Yelp Inc. (NYSE: YELP), the company that connects people with
great local businesses, today released third quarter data for the
Yelp Economic Average (YEA), a benchmark of local economic strength
in the U.S. The report finds slow national growth, up by only .07%
in the third quarter, as several of California’s local economies
continued long-term declines, led by San Jose and San
Francisco.
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The Yelp Economic Average Rebounded
Slightly in Q3 2019 (Graphic: Business Wire)
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. The
report measures local economic strength through business survival
and consumer interest. For every quarterly release since the
introduction of YEA earlier this year, its change from the prior
quarter has matched the change in GDP growth. 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.
“As China trade tensions, Fed deliberations, and impeachment
inquiry talk trickles down to Main Street, the Yelp Economic
Average has barely budged,” said Carl Bialik, Yelp’s data science
editor. “At the same time, California’s biggest local economies are
continuing to struggle. Construction limits and increasing rent are
pushing consumers and workers farther from businesses, contributing
to continued quarterly declines in some of the state’s biggest
metro areas, with retail and restaurants taking the biggest
hits.”
California’s Local Economy Declines
While reports show that California’s position in the national
and global economies is strong, the state has seen the biggest
decline in local economic activity among the 50 major U.S. metros
YEA tracks. San Francisco, San Jose and San Diego all rank in the
bottom five metros, while Los Angeles is in the bottom ten and
Sacramento places below average. Limits to development around
California have driven up housing costs, which has restricted the
supply of workers, raised labor costs, and limited consumption,
according to the McKinsey Global Institute.
California’s shopping businesses have been hardest hit, ranking
at the bottom in each of the five California metros, with stores
selling shoes, cellphones, and women’s clothing falling the
sharpest. Restaurants, food, and nightlife categories are also
struggling in all five California cities. The declines range from
2.6% in San Diego to 9.3% in San Jose, with an above-average fall
of 6% in San Francisco. As rents in San Jose and San Francisco have
surged, retail and restaurants have felt the impact.
San Francisco and San Jose have particularly struggled with
construction limits and rents, and they’ve consistently ranked as
the bottom two metros in the economic average in each of the last
three quarters. The other California metros had been doing better
at times but dipped in performance heading into this quarter.
New Fast Growing Cities Emerge
Buffalo (NY) and Pittsburgh (PA) join Milwaukee (WI), Honolulu
(HI), and Portland (ME) in the top five boomtowns this quarter,
knocking out Louisville (KY) and Memphis (TN) from last quarter.
Home services businesses have been among the strongest in all five
of the top metros. Local factors also propelled these boomtowns to
their success, including food trucks in Milwaukee, life coaches in
Buffalo, junk removal in Honolulu, juice bars in Portland, and
software developers in Pittsburgh.
Shopping and Lower-Priced Restaurants Gain Ground
While still below its level three years ago, retail gained
ground for a second straight quarter. Stores selling items that
shoppers might want to check out in person were among the gainers:
sporting goods, appliances, hardware stores, antiques, furniture
stores, and art galleries. Department stores and women’s clothing
also advanced. Cellphones and computers, which previously lost
business to online retail, made a bit of a comeback this
quarter.
Lower-priced and stay-at-home options were among the strongest
in the restaurants, food, and nightlife categories, while several
types of upscale restaurants declined, indicating a shift toward
value and eating in. The strongest types of food and drink
businesses in the third quarter included chicken wings, pizza, and
sandwiches; and grocery stores, delis, and stores selling beer,
wine and spirits.
For more assets and images, please find them here. For more
information and Yelp’s latest metrics, visit:
https://www.yelp.com/factsheet
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 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.
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.
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 we have
been measuring a year and a half, originally as part of our Local
Economic Outlook — in which the category is present;
- Uniform spread across the four Census Bureau-defined regions of
the country.
We 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. We 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.
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.
We calculated equivalent scores at the regional and metro level
to provide a local look at the state of the local economy.
When comparing YEA to GDP growth we compare the change in both
indicators rather than the absolute magnitude because they’re
measured and reported differently.
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/20191022005375/en/
Yelp Inc. Julianne Rowe jrowe@yelp.com
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