Feb 1, 2019

Yelp's new economic indicator shows a slowdown

Yelp launched an index that tracks consumer demand and the health of businesses on its platform and the company says the activity of its millions of users is raising red flags about the health of the economy.

Reproduced from a Yelp chart; Chart: Axios Visuals

The big picture: Yelp is the latest to leverage access to the users and businesses on its platform to glean trends about the national economy, following LinkedIn. It comes at a time when there is broad concern about a coming economic slowdown and key retail sales data was delayed in light of the government shutdown.

How it works: The Yelp Economic Average measures how much users are engaging with — i.e. reserving a table, joining a waiting list, or requesting a quote on the site— retail, restaurants and service companies on its site or mobile app.

  • The index averages the overall "scores" of engagement along with business survival, or the openings and closings of stores.
  • Yelp said it measured its chosen businesses against a basket of other predetermined categories — much like CPI — to adjust for seasonality, the presence of more businesses on its platform.

Inside the report:

  • The Yelp Economic Average, or YEA, dropped to 98.5 in the fourth quarter from 100.7 in the third quarter. (All averages are relative to Q4 of 2016, when the score was set to 100.)
  • Yelp said only one of the 30 business sectors — which include everything from grocery stores to personal injury law firms — saw its score rise from the Q3: gas stations. (Perhaps a nod to lower gas pries seen in the fourth quarter).
  • The overall shopping category, which includes appliance shops, computer stores and sporting goods, fared the worst in Q4, though those brick-and-mortar retailers had already been in steady decline.
  • Other discretionary categories saw a pullback too: art galleries, antique shops and gardening stores saw quarter-over-quarter declines of 2% or more.

Yes, but: There's not much history to know whether or not a sharp moves in Yelp's index says more about Yelp itself rather than the broader economy.

  • Yelp's index declined in late 2017, but the economy actually grew at a faster pace than economists anticipated.

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