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Yelp’s Local Economic Outlook: Using Data to Track Small Business Opportunity & Economic Health in America

Launching today, the Yelp Local Economic Outlook is a new program to track which areas of America are ripe for economic opportunity: where small businesses in America have the best chance of success. This program is an ongoing effort to surface insights from Yelp’s deep data stores to help businesses succeed and to arm policymakers with the information they need to make effective change that will boost local economies.

The Outlook centers around a list of 50 cities in the U.S. ranked by economic opportunity to show the current state of affairs in the local American economy. We define “economic opportunity” as the chance businesses have to stay open, and for new businesses thrive.

In addition, we have produced a list of 50 neighborhoods that have experienced the largest positive change in economic opportunity over the last year to provide a guide for where to look next. We have also ranked 10 top business categories by change in economic opportunity.

While the city list is a business’s best bet for where to open now, the neighborhoods and business categories lists show us where local economies are heading.

Download the Yelp Local Economic Outlook

In the Outlook, you’ll find the full list of 50 cities, 50 neighborhoods, and 10 business categories and more detail on the methodology and findings for each. We’ve also included analysis of why these areas are able to boast greater economic opportunity, including hypotheses about which cultural and social factors are involved.

We plan to continue to update and extend the Yelp Local Economic Outlook and hope to also incorporate other factors, such as local rent and regulations. We would love to see economists and researchers use the rankings to uncover what enables small-business success at the local and category level.

Yelp data as an economic measure

No one has better, more in-depth local data than Yelp. We’ve been connecting people with great local businesses since 2004, charting openings, consumer trends, and business details all the while. Now we’re using all the data we’ve amassed — from our 135 million reviews, from other information about businesses shared by our tens of millions of users and participating business owners, and from search and other behavior on our platform — to map U.S. cities, and their communities, on the basis of their local economic health and consumer choice.

We’ve analyzed business quantity and quality at the local level, found the characteristics of businesses that protect them from having to shut their doors, and identified the community forces that create a fertile marketplace for new businesses to get off the ground.

While our data is the broadest and best set of local-business indicators around, the real world of local business is messy, and it’s helpful to compare Yelp’s findings to other data sources.

Harvard University researchers Luca et al show in a recent paper that even Yelp’s basic counts of local businesses capture more data — and faster — than government data alone can. The paper follows earlier work demonstrating the value of Yelp data in measuring economic impact: A prior Harvard study showed the link between an increase in minimum wage and business success or failure, as measured by Yelp data. As for our opportunity rankings, studies, like this report from the The United States Conference of Mayors and The Council on Metro Economies and the New American City, have found similar results using government data. The top markets for projected population growth in the US Mayors’ report generally rank highly in Yelp’s outlook.

And our data goes far beyond merely counting local businesses to describing them: How expensive are they? When do they open and close? What do they look like? What is their reputation with our users?

Building a model to measure economic opportunity

For months we’ve been working to identify the factors within our rich data set that best describe the economic health of a local community, including actions by Yelp users that indicate intent to visit a local business (such as calling the business, making a reservation, or getting directions) and basic business characteristics. That lets us tease out the differences that matter on Main Street, not just on our app: Where are people finding great businesses, and taking steps to visit them?

Methodology

We created an opportunity score based on several factors for cities and ranked them based on that output. We also ranked neighborhoods and categories based on change in opportunity-based ranking over the year-earlier period. Each business in the U.S. that has been reviewed on Yelp was analyzed using a random-forest model to estimate its probability of remaining open for the next three months, for each month over nearly two years, going back to November 2015. The model took into account the business’s location, category and other factors, mainly based on Yelp-related activity for that business: how many reviews it received, how often people looked at its Yelp page and so on. The resulting score for each business was the building block for our rankings at the city, neighborhood and category levels.

Time frame

The rankings are based on data from the third quarter of 2017: July through September. The rankings by change are based on comparing the third quarter of 2017 data with the third quarter of 2016.

Scope

While the random-forest model covered all businesses on Yelp, we built our rankings using the top 10 primary categories on Yelp, according to page views. We chose 50 major U.S. cities — the Yelp 50 — based on a combination of factors, including the number of businesses in those cities, and will track economic opportunity in those cities over time. For the neighborhoods ranking, any community that isn’t primarily an airport and has a minimum number of businesses was eligible for inclusion.

Ranking 50 Cities for Economic Opportunity

The top 50 cities in America ranked by their current economic opportunity. Change in rank from the same time period a year prior is denoted by a green up arrow for increase, a red down arrow for decrease, or a dash for no change. First, we identified the three biggest cities as measured by number of Yelp-listed businesses in each of the Census Bureau’s nine U.S. regions. We then added 23 of the other largest cities in the country. Each city includes all cities within 33 miles of it, as measured by the average latitude and longitude of Yelp businesses in each city. So, for instance, San Francisco includes Oakland and Berkeley; Dallas includes Fort Worth. Places within 33 miles of two of our 50 cities are included in the city they’re closer to. We’ll continue to track these 50 cities — the Yelp 50 — for their economic opportunity

Top 50 Most Improved Neighborhoods for Economic Opportunity

The top 50 neighborhoods in America ranked by change in economic opportunity compared to the same time period a year prior. Any neighborhood in the country was eligible, not just those in the Yelp 50 cities, so long as they had at least 200 reviewed businesses listed on Yelp in the selected categories, and are not primarily airports.

Ranking 10 Business Categories for Most Improved Economic Opportunity

The top 10 primary categories on Yelp, according to pageviews, ranked by change in economic opportunity compared to the same time period a year prior. We will track these same 10 categories over time.

The benefits of Yelp data over government data

Researchers and policymakers have to date been limited in the data they can use for economic forecasting and analysis on a local level. Data from the Bureau of Labor Statistics and the Census Bureau is traditionally used to understand local economics in America. However, government data can lag by up to two years and does not provide a localized layer beyond ZIP codes and county lines.

There are three key benefits of using Yelp data in complement to government data for economic analysis:

  1. Nowcasting: Real-time data on Yelp, compared to years-old government data, allows us to see the impact of policy and programs immediately.
  2. Granularity: A view into neighborhoods, cities and even streets on Yelp gives a highly detailed local picture, vs. county or ZIP code only with government data.
  3. Context: Yelp ratings, reviews, photos, and more from both consumers and businesses allow us to understand why preferences are shifting or businesses are in decline or boom.

Looking forward: Theories on causal factors and ideas for further exploration

While the Yelp Local Economic Outlooks shows current opportunity and a roadmap for the best categories and areas to open a business, understanding the why – what factors play into this ranking – would benefit from further economic study.

Some factors we have considered include:

  • Some of the lower-ranking metro areas have more competition, higher rents and high cost of living.
  • Laws and regulations may be friendlier to entrepreneurship and small business owners in markets with more opportunity.
  • Populations in the top markets generally are rising faster and are projected to continue to rise at a higher rate than in the other cities.

This is just the beginning. We’re looking at comparing cities within specific categories, for instance, and at including more places around the country. As we continue to work on this project, we’ll release updates, reflecting the latest Yelp data and our latest insights about what makes for the strongest local economic climate.

Are you a researcher, academic, economist, or journalist who wants to dig into our data or get more detailed results, such as a ranking of neighborhoods in your city? Are you itching to analyze our findings and develop your own hypotheses about the social, cultural, and regulatory factors that influence economic opportunity on a local level? Contact the Yelp press team at press@yelp.com.

Travis Brooks, Jenny Lin and Mehran Navabi contributed to the Yelp Local Economic Outlook project. Rachel Youngblade contributed to the analysis and reporting of findings.