Federal Reserve Bank of New York Staff Reports: Federal Reserve Bank of New York: Decoding Demand Shocks in Retail & Services with Foot Traffic Data (Explained)

This paper discusses estimating demand shocks.

Yes, specifically in customer-facing businesses.

Like retail, service, and health sectors.

They say it's hard to measure demand shocks there.

Why is that?

Because output only occurs when a customer actually arrives at the establishment.

I see.

Unlike manufacturing, where output can be tracked more directly.

Precisely.

So they introduce a new way.

Using high-frequency foot traffic data from SafeGraph?

That's right.

For New York City...

But foot traffic isn't the same as demand, is it? It could be influenced by a store's own strategies.

That's a good point.

They recognize that.

So how do they account for it?

They present a theoretical framework.

It isolates establishment-level demand fluctuations.

And separates those from firm-level strategic choices?

Exactly.

That's a core part of their approach.

What did they find after doing all this?

Significant heterogeneity in the persistence of these demand shocks.

And in their trends?

Yes.

They also found that simply pooling all establishments together understates the variance experienced by some.

So treating all businesses the same would be misleading?

That's the core message here.