Academic journal article Chicago Fed Letter

Emerging Urban Markets in the Midwest

Academic journal article Chicago Fed Letter

Emerging Urban Markets in the Midwest

Article excerpt

Midwest cities began to turn around their fortunes in the 1990s, not through outside assistance but by building on their inherent advantages and by virtue of favorable trends. In the first quarter 2000, the Federal Reserve Bank of Chicago held a series of conferences on the potential of emerging innercity markets. Conference participants represented a wide range of stakeholders, including private business organizations, public and nonprofit agencies, and academics. This Fed Letter summarizes the discussions and highlights the issues presented during these conferences.

Hidden market potential

Lynn Reilly Whiteside, chief executive of Social Compact, along with other staff members, presented a description of the group's Emerging Neighborhood Markets Initiative project. Social Compact is a Washington, DC, based nonprofit organization whose goal is to foster business investment in lowincome areas. The Emerging Neighborhood Markets Initiative is an effort to promote the development of data and indicators of inner-city market potential for commercial development. The project's initial work includes a case study of the neighborhoods of Little Village and Pilsen on Chicago's Welt Side.

Current research on the market potential of inner-city neighborhoods has been hampered by the lack of dependable statistics from official sources on inner-city markets. In particular, measures of household income are underreported due to the use of means-based criteria in qualifying for various aid programs and from underground economic activity. So too, measures of household spending are not available at a fine enough resolution to assess inner-city markets, and customary imputations from national data are typically more accurate for middleand upper-income areas, which represent a larger portion of the national samples. Even so, from national data, we know that households that earned less that $30,000 collectively accounted for $898 billion (29%) of consumer spending.

In light of these data limitations, the Social Compact is fostering the adoption of a different type of model of inner-city retail market potential. Indicators can be compiled to better represent the economic situation in city neighborhoods. These include measures of wealth in the form of home equity, declining crime rates at the beat versus district level, and growth measures in terms of existing to potential sales. Social Compact's model draws on data from public and private sources, as well as from the proprietary data of Social Compact's corporate partners. Such partners include large corporations such as State Farm Insurance, Commonwealth Edison, SBC/ Ameritech, Walgreens, Harris Bank, Home Depot, and Blockbuster Video.

Social Compact uses a four-tier process. The first tier assembles the available information on market characteristics such as income, population, homeownership, crime incidence, and retail sales. The next tier constructs data gathered by "intercepts," which is a technique that uses local people to perform market surveys. The third tier assembles the proprietary data and market experiences of Social Compact's corporate partners. The final tier analyzes all the different data and provides estimates of market size and potential. Using such data techniques, Social Compact arrives at substantially higher estimates of aggregate income, population density and growth, and stability than those from conventional sources.

During the session, several Federal Reserve Bank staff members commented on methodology and presentation. Ed Green suggested using the more conservative drill-down estimates, instead of those in the mid-range, to enhance the project's perceived credibility. Meanwhile, Lori Woos cautioned against using mortgage data to determine owner-occupancy since, in her experience, many families in Little Village split mortgages for multifamily homes. Woos also suggested comparing Little Village and Pilsen with other high-growth areas, such as the Clybourn Corridor, that may have different demographic characteristics. …

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