Recently, I attended an announcement in Detroit’s West Village where JPMorgan Chase & Co. announced a $5 million investment toward the establishment of a $30 million Strategic Neighborhood Fund to drive inclusive economic growth in Detroit’s neighborhoods. The fund will support the Detroit Strategic Neighborhood Initiatives and is a collaborative partnership between Invest Detroit, the Detroit Development Fund and Opportunity Resource Fund and is a key initiative as part of Mayor Duggan’s neighborhood developmental plans. This initiative is dedicating critical resources towards commercial and residential real estate, jobs, and community infrastructure in several Detroit neighborhoods over the next decade beginning with the Coe in Southwest Detroit.
This initial $5 million grant is part of a larger $30 million investment across three neighborhoods–West Village, Southwest Detroit and Livernois/Six Mile–over the next five years and will continue to expand economic and neighborhood development beyond Midtown and Downtown.
With business and community leaders in attendance, there was significant enthusiasm on a sun-splashed day in the Motor City. While listening to the speakers, my mind turned towards Detroit’s overall revitalization efforts; specifically, how this region compares to others when it comes to small business development and its role in the city’s revitalization.
I recently came across an unique study produced by the JP Morgan Chase institute based on expenditure levels by industry and categories. The Local Consumer Commerce Index (LCCI), which was first released as the basis of its report, Profiles of Local Consumer Commerce: Insights from 12 Billion Transactions in 15 U.S. Metro Areas was released in December, 2015, and featured 15 major metropolitan areas including Detroit. Each of these metro areas was selected based upon the depth of the Chase customer market, the volume of total US economic activity captured and geographic coverage. The most recent LCCI update was based on over 16 billion transactions from over 54 million customers.
I discussed the report’s findings with JP Morgan Chase Institute’s Marvin Ward Jr., a research lead with the local Consumer Commerce research group, to better understand consumer’s expenditures, its impact and implications for our region.
Lee: What are the key highlights from recent trends in the LCCI data for Detroit?
Ward: Detroit consumer spending tracks the national picture remarkably well. While growth in Detroit is a little more volatile – spending slowdowns dip lower than the corresponding national slowdowns – the city has largely transitioned from higher year-over-year growth in 2014 to a lower year-over-year growth in 2015 and 2016. The growth that Detroit experienced has largely been driven by residents under 35 years of age.
Lee: So younger consumers are driving spending growth.
Ward: In June 2016, spending in Detroit by consumers under 35 increased by over 8%, while spending by consumers over 35 increased by less than 3.2%. From an income perspective, most of the growth has come from lower income people (who tend to be younger). Spending in Detroit by consumers in the top 20% of the income distribution shrank by 1.4% in June 2016.
Lee: How does Detroit’s local consumer spending growth compare to the US? Any specific industries where Detroit spending is outpacing the rest of the country?
Ward: Detroit is different with respect to the kinds of businesses that are growing. For example, fuel spending stood out as starkly different in 2015. Detroit fuel sales lagged the national sales by over 2 percentage points at times, but this disparity seems to have settled out in 2016. Durable goods (e.g. home improvement, appliances and furniture) are a particularly notable story in 2016, insofar as spending growth at durable’s retailers in Detroit outpaces national growth within the same category. These are useful data points, but they provide an incomplete picture. They can, however, help to calibrate the nuanced on-the-ground assessments of Detroit officials and residents.
Lee: What sets Detroit apart from the other cities and how are the suburban areas doing relative to spending growth?
Ward: In addition to differences in the kinds of places consumers spend, Detroit seems to be departing from the spatial patterns of growth seen in the rest of the sample. Detroit has seen a volatile, yet probable increase in spending growth from customers that live outside of the city, but within the metro area. Growth from the suburban portion of the metro area contributed virtually nothing to growth in January 2016. By June, the suburbs contributed 2.4 percentage points to overall growth. This suburban growth profile departs from trends in the other 14 metro areas we observe.
Lee: How are consumers in Detroit spending at small businesses? Key trends and implications?
Ward: Small businesses have contributed more to overall growth in Detroit than medium and large business since the close of 2014. In 2014, Detroit lagged behind other cities with respect to small business growth, but it seems to have made up that ground. In fact, small businesses in Detroit are actually growing slightly faster than small businesses nationally. By contrast, medium-size businesses seem to be doing better elsewhere.
Lee: So small business growth is, in fact, playing a major part in Detroit’s revitalization.
Ward: Small businesses appear to be a major component of revitalization in Detroit. This suggests that entrepreneurs continue to see Detroit as an attractive place to start a business.
Lee: What types of consumer spending might indicate an improvement in the local economy?
Ward: Detroit has seen consistently positive economic growth in recent years, but that growth has varied by industry. There are those that argue restaurants serve as a useful leading indicator of economic improvement. The rationale underlying this claim suggests that restaurants are a luxury that consumers engage when extra disposable cash is available. If this is the case, it is worth noting that Detroit has seen notably consistent year-over-year growth in spending at restaurants. Since late 2014, restaurants have contributed more to growth in each month than any other type of retail or service business we observe.
Lee: Other key implications from the study?
Ward: A robust economy needs growth in other sectors as well. Furthermore, strong medium and large firms need strong commercial ecosystems to support their work. That means a deep labor market that has a robust mix of low and high-skilled workers, well-functioning infrastructure, and a growing population that can spark additional demand for local goods and services. Detroit does seem to be making these investments, but the results of efforts to build this ecosystem can take time to materialize.