Yelp Inc. (NYSE: YELP), the company that connects people with great local businesses, today released its first-ever annual Yelp Economic Average (YEA) report, a benchmark of local economic strength in the U.S. The report found that most local economies nationwide slumped in 2019, down 1.3% from the previous year, led by underperformance in restaurant, food and nightlight categories, as well as brick-and-mortar shops. A weak fourth quarter, down 1.4%, largely contributed to the 2019 drop and marked the largest quarter-over-quarter decline since 2018. The report also found that businesses in states that voted Republican in the 2016 presidential election outpaced the economic growth of businesses in states that voted Democratic.
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Yelp Economic Average Shows a Declining National Economy in 2019 (Graphic: Business Wire)
YEA is calculated starting from the fourth quarter of 2016 nationally, as well as in 50 metros and every state including Washington D.C., 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. 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 slowdown in overall economic growth in 2019 reflected business profits declining, which contributed to a fall in business investments. Uncertainty around trade policy also hindered local economic growth in 2019,” said Carl Bialik, Yelp’s data science editor. “For every quarterly release since the introduction of YEA in Jan. 2019, its change from the prior quarter has matched the change in GDP growth. If GDP continues to move the same way YEA does, we can expect the GDP growth in the fourth quarter of 2019 to show a decline from the third quarter’s level of a 2.1% increase.”
Republican States Have Outperformed Democratic States Since 2016
YEA found businesses in states that voted Republican in the 2016 presidential election had greater economic growth than businesses in states that voted Democratic – the local economies of blue states lagged behind red states by 2.8 points relative to 2016, widened from a gap of 1.3 points in 2018. The red-blue local-economy gap persists in all four major regions of the country: the Northeast, South, Midwest, and West.
Four out of the top five states with the strongest local economies in the U.S. voted Republican in 2016 – North Dakota, South Dakota, Wyoming, and Alaska – with services sectors and several food-related businesses driving that growth. The five states and districts with the lowest economic growth trended blue — Washington D.C., Illinois, Massachusetts, Connecticut, and California — primarily led by declines in retail businesses.
A Tough Year for Retail, Food, and Auto Businesses
Three crucial sectors dragged down the local economy in 2019 and each one is expected to keep falling in the beginning of 2020.
Shopping categories declined in 2019 by 2.1 points year-over-year, driven down by a weak holiday shopping period. The weakest business categories varied by type and price point, and included stores selling mobile phones, shoes, and appliances.
Restaurant, food, and nightlife businesses were collectively down by 1.3 points in 2019 from a year earlier, driven by declines across ice cream, grocery stores, and New American cuisine categories. Fast-food restaurants also took a hit, down 1.5 points from 2018 as diners opt for less standard dining and drinking options, such as breweries (up 4.8 points), food trucks (up 3.5 points), and juice bars (up 2.2 points).
Auto businesses also slumped, down 2 points from a year earlier, reflecting the possible effect of ride-sharing’s popularity on auto businesses, such as gas stations and auto-repair shops that rely on high driving levels in the general population.
Smaller States and Metros Gained Economic Ground in 2019
The top metros in 2019, among the 50 major metros around the country we’re tracking, were Milwaukee; Honolulu; Portland, Maine; Buffalo; and Pittsburgh. Services businesses fueled gains in these metros, with some gains across food and nightlife businesses. Orlando, New Orleans, and two of the 2019 boomtowns — Portland and Honolulu — look most likely to continue to succeed in the first quarter of 2020.
States with the most economic growth in 2019 were the Dakotas, Wyoming, Hawaii, and Alaska, with growth driven by services sectors and several restaurant and food businesses. Continued gains are expected in some of these top-performing states, as well as in Maine, Louisiana, and Nevada.
The bottom five metros in 2019 include Portland, Oregon; Dallas; Chicago; San Jose; and San Francisco. Among the 50 states and Washington D.C., the five lowest rates of economic growth since 2016 were posted by Washington, D.C.; Illinois; Massachusetts; Connecticut; and California. Retail businesses led the decline, across these metros and states. While California’s economy is the fifth largest in the world, it ranked fifth from the bottom in YEA for 2019. Oregon, Delaware, and Oklahoma are expected to fall in the first quarter of 2020, along with continued declines from D.C. and Connecticut.
For more assets and images, please find them here. Find a video recapping the YEA 2019 Annual findings, here. For more information and Yelp’s latest company metrics, visit: https://www.yelp-press.com/company/fast-facts/default.aspx
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, as measured by activity such as page views, reviews, and photos;
- 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.
Choosing baseline categories
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.
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.
We calculated equivalent scores at the regional, state, and metro level to provide a local look at the state of the local economy. We also calculated scores by political party. We did so by reviewing the performance of state’s local economies (through business survival and consumer business interest), comparing states based on the political party that won the state in the 2016 presidential election.
We calculated annual scores by computing the mean of scores in each year’s four quarters.
Forecasting YEA scores
We used Facebook’s Prophet package to forecast the current quarter’s YEA scores based on prior quarter’s scores, at the national, business sector, and local levels.
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.