Uncovers Possible Ride-sharing Effect: Auto
Businesses Slump in First Quarter of 2019
Yelp Inc. (NYSE: YELP), the company that connects people with
great local businesses, today released the Yelp Economic Average
(YEA), a benchmark of local economic strength in the U.S.
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the full release here:
https://www.businesswire.com/news/home/20190424006180/en/
Yelp Economic Average (Graphic: Business
Wire)
“Many of today’s data resources for measuring economic health
generally either focus on giant corporations or move at a glacial
pace,” said Carl Bialik, Yelp’s data science editor. “Yelp has
information on millions of U.S. brick-and-mortar businesses and the
interests and needs of the millions of consumers who use Yelp every
day, which researchers have found makes us well positioned to
quickly measure a huge swath of the economy that is missed by many
major indicators.”
The Yelp Economic Average rose by eight tenths of a point in the
first quarter of 2019 after a tough end to 2018. In the last
quarter of that year, the YEA—a measure of the health of important
sectors across the economy, based on Yelp’s unique data set—fell by
2.2 points. The YEA measures success using two signals: business
survival and consumer interest. The opening of new businesses and
an increase in consumer engagement both boost the YEA.
Local and professional services businesses drove the increase,
but two major sectors bucked the trend by falling in the first
quarter. Retail businesses continue to struggle. And automotive
businesses extended their slump. In most major metros around the
country, businesses associated with the auto industry have
experienced a steady decline over the past two and a half
years.
Why Auto is Slumping
One question that emerged from the Yelp Economic Average is
whether the declining health of the auto sector is a side-effect of
the growing popularity in ride-sharing. Far more people are getting
around by Uber and Lyft today, and many of those rides may replace
individual driving trips and even contribute to a decline in car
ownership. That’s one of several challenges facing local auto
businesses around the country. Yelp charted the fortune of auto
businesses in 50 major metros around the nation, looking at the
overall Yelp Economic Average score as well as the performance of
its two constituents: auto repair and gas stations. While the
picture for gas stations is mixed, the major slump in auto repair
across the board is weighing on the automotive sector in every
corner of the country.
Auto businesses are facing other challenges. Increasing fuel
efficiency may mean more miles between fill-ups while auto-repair
shops struggle to find qualified workers.
The Marie Kondo and Trump Tax Effects
Beyond the auto sector’s slump, the surge in junk removal and
hauling businesses suggests that Marie Kondo is on to something.
The number of Americans hiring professionals to cart their stuff
away is rising enough to significantly move the needle on junk
haulers’ YEA score, up 7.2 points.
Americans also are increasingly turning to lawyers. Whether they
specialize in real estate, divorce and family, or personal injury,
lawyers had a strong start to 2019. Their professional-services
peers, accountants, also had a strong quarter, with the tax
overhaul likely fueling demand months before the filing
deadline.
A rebound in these core business sectors, such as local
services, professional services, and restaurants, may be early
signs of an economic turnaround. A third successive first-quarter
rise isn’t a result of seasonality; Yelp normalized the data so
that it is seasonally adjusted.
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 YEA
components as baselines because they provided the most robust
controls against seasonality and activity on Yelp.
Calculating 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.
YEA is the mean of the overall consumer engagement score and
business-count score.
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 platform for consumers to discover,
interact and transact with local businesses of all sizes. Yelp was
founded in San Francisco in July 2004.
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version on businesswire.com: https://www.businesswire.com/news/home/20190424006180/en/
Yelp Inc.Kathleen Liupress@yelp.com
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