“Until this year I did not feel the recession at all – this is really weird” says Gopal “Paul” Sood.  Paul runs the 23^rd St Café in the North University Park neighborhood of Los Angeles and for five out of six years it has been a success. Since August Paul has at had to reduce manpower by more than half to keep his restaurant running “I only have two or three people working here now. Between three and six pm I tell them to go home, take a break, they see their kids after school.” What has changed?

One culprit is that his operating costs have increased. According to Paul “Utility rates have gone up” as well as commodity prices for basic food produce. Energy costs have increased steadily and water will only worsen due to the drought year.  Paul also pointed out that it is harder for small “mom and pop” businesses because “we don’t get the utility tax breaks like the big companies.”

The government has tried to make access to capital easier to stimulate the economy by keeping the federal funds rate near 0%.  If Paul has plans to expand then the question of access to capital through loans becomes relevant except contrary to the capitalist business model of continuous expansion Paul states: “I’m not looking to expand – but bank loans have high interest rates; so I’m holding back to invest.” His response may suggest that government policy meant to help the economy is maladjusted to helping small businesses.

Paul had found that his weekday clientele was down “50-60%” which he saw as the loss of working customers on lunch breaks due to the downsizing and disappearance of small businesses on Washington Blvd a few blocks away. “I know my customers, some were staff at the SEIU Union, I don’t see them anymore.” Paul knows he has a reliable core of customers that are USC students “I’m still busy Friday, Saturday, Sunday from the students still coming but it’s the business and maybe the local schools downsizing.” In fact it’s been a year of downsizing and pay freezes for the L.A. Unified School district.

New competition isn’t a problem either – “we are a neighborhood café not a ‘gourmet’ café,” referring to the “Nature’s Brew” café which opened up last year on S. Union Ave. Asking Paul what changes he might have to make he said “I don’t want to raise prices – when I’ve tried doing specials it doesn’t change the number of people coming in.” On the changing nature of downtown Paul replied that “23^rd street is too far to feel the downtown revival…” and on USC’s impact on the neighborhood: “this is a low-income area and USC is creating their own market, only big companies are willing to pay into it” referring to the commercial spaces made available to by new housing constructions and the plans to renovate the University Village. Indeed rent for most of those spaces is in the ballpark of $10 per square foot while rent is about 2$ in older buildings that house local businesses.

The outlook isn’t entirely grim though as social media has been a source of new customers for Paul’s restaurant. “What really helps me are reviews on Yelp, I’m getting tourists from the science center and museums, even people going to LA Live.” Indeed the 23^rd St Café gets 4/5 stars on Yelp. For Paul, this success is due to something the franchises don’t have: “I have specialty food – so I have a loyal following.”

Rice and cigarettes. The first one I enjoy, but the second not so much. Well actually that’s not true; I enjoy both, but truly do want to stub my nicotine addiction. Rice has always been an integral food product in my life. Growing up, I ate bowls after bowls without ever thinking twice about how much rice was available. It wasn’t until a bit over a year ago my mother cautioned me to not eat so much rice. Apparently, rice now became a financial concern within my mother’s grocery budget. This shook me, but I ignored it. It wasn’t a problem doing so since my mother never brought it up again.

Looking back on that incident, I compared the price of rice through the years and noticed that there was a steep increase from a consistent average from (US Long Grain) 2007-2012 at 550/ pound to almost 610 a pound at 2013. This explains why my mother was concerned over the price of our rice. Since then, the price has remained in the 600’s averaging around 600.

Now for cigarettes (not proud of this, but). I remember the first time I bought a pack in my sophomore year at high school. It was under 5 bucks for a pack of reds. Since 2011, I’ve been a pack-a-day guy with a minimum wage job. But, if a person has asked me for a cigarette, I would give it to him. There was this universal smoker’s code of giving a cigarette in order to feel better about asking someone when I was in the same situation. I was at peace with this code within that time, but it wasn’t until the past year when I abandoned this karmatic practice. Why? Well, cigarettes have constantly been increasing in price and there came a point when my usual pack of cigarettes jumped 2 dollars within a year. That was it. I didn’t stop smoking but I did stop sharing my smokes with others.  Looking at a cigarette price index, it is evident that this change in price was due to a combination of increased spending on advertising for cigarettes as well as the actions of health organizations to minimize the use of cigarettes. Health organizations convinced government to raise taxes by 10% in order to reduce cigarette consumption.

I am not the only one guilty of breaking this code. Many of my smoking peers and strangers have been resilient in their effort to bum their cigarettes as they too have noticed the sharp increase in cigarettes. It is almost as if the new code is to never ask to bum a cigarette.

For Price Agah, being the co-owner of a local pizza place was never something she envisioned herself being at an early age, but sometimes there are opportunities that cannot be pushed away. In her case, it was the combination of her brother and her husband (whom she co-owns Pizzanista with) coming together with an idea for a Pizza place in downtown Los Angeles. And with the combination of luck and good timing on their side, the owners of Pizzanista have established a successful (and delicious) pizza place on the edge of downtown Los Angeles in the Arts District.

One of the main reasons that Price attributes to their success is the fact that the downtown Los Angeles neighborhood is growing and expanding at a rapid rate that has seen many “20 to 30 year old people like us” move into the neighborhood, according to Price and her husband who also live in the neighborhood. However, being a small business owner is not as easy as it has sounded so far, especially in the state of California. In terms of the most challenging aspects of being a small business owner, Price was not shy in declaring her frustration with the figurative “red-tape” that state and city government policies have put in place. When asked about the challenges facing her business that keeps her up at night Price said “I would say that, by far, the biggest challenge of being a small business owner in Los Angeles, well California in general, is dealing with the egregious bureaucracy on a city and state level”. She went on to describe the hurdles and hindrances they have to go through on a yearly basis in terms of the afore mentioned “red-tape” that makes owning a small business in California a “tedious and prohibitive” challenge, according to Price. Perhaps some of her frustration comes from the fact that she mentioned how long it is taking for them to obtain a beer and win license, let alone a liquor license, which is something the owners have strived for since opening in 2010. The other challenges that Price and the Pizzanista team voiced were the normal wear and tear of owning a restaurant, such as management, human resources, training, and turnover of employees.

As with all businesses, there are periods of time where you can encounter ups and downs that are just the natural consequences of the business cycle. However, Price did mention how business for them has not seen extreme dips in demand as she explains that “Pizzanista is lucky in the sense that we are in the food business, and everyone needs to eat!” All jokes aside, there is some truth to that statement, as she cleverly points out that “if we were selling a luxury or niche-product, we might notice consumers cutting back on spending”. An interesting perspective that brings light to her idea that everyone needs food, so demand for their pizza should remain steady if their quality stays at the same level. In terms of seasonal issues with the restaurant, Price explained how Pizzanista usually sees a decrease in sales during the beginning of each month. At first, I found this point a bit perplexing before she went on to explain that “we experience a very light, but still noticeable, decrease in business at the beginning of each month, when most people have to pay rent and other bills.” Not surprisingly, she noted that another dip in demand that they usually face is in August because of the higher temperatures and because their clientele tend to be on vacation during that month.

The last major topic we discussed during the interview concerned the constant fluctuation of prices in terms of their ingredients and the produce they buy. I found it very interesting that on a day by day basis, Price mentioned that “every week they receive updates from our different vendors regarding pricing, and we try to stay abreast of any conditions that affect produce prices.” She added that they try to buy their produce solely from California farmers, but that sometimes specific produce items are unavailable due to factors that are out of their control (e.g. pests, weather, drought etc.) Another obstacle Pizzanista faces is that at the restaurant they have a set menu, which occasionally forces them to buy produce from further away, and sometimes abroad. That being said, Price explains their reluctance to do this because “when we are forced to buy produce outside of California, we normally buy products from Mexico or Central America, which usually come with a higher price tag because of transportation costs.”

Despite the day to day fluctuations of produce, I found the most interesting aspect of this interview was how emotional and passionate Price Agah felt about being a small business owner in the state of California and in Los Angeles and what a “tedious” and “hindrance” the local and state governments can be to small businesses. Perhaps Price is one of many frustrated small business owners who are tired of dealing with the Californian bureaucracy with all of the red tape. Although it was not directly mentioned during our interview, Price and Pizzanista might just move to a more business friendly environment, along with many other business owners, to Texas, which happens to be her home state.

When Susanna Jang, the owner of Tips To Toes salon in south Los Angeles, started her business in 2004, she could depend on customers to call for an appointment.

But with a nail salon on every corner, she said customers have become “spoiled,” and no longer stick to appointments or even make them at all. Now, when they do call, it’s to ask about pricing, and if they end up coming in, they request a cheaper service such as a polish change versus a manicure.

“I lose the most customers when it’s busy and they don’t want to wait,” Jang said. “It used to be that more people made appointments, but now customers expect to come in and be served right away.”

Jang, who moved from Korea in 1990, cannot afford to lose any business. But she says it is hard to predict when the salon will fill up if customers think they no longer have to call in advance.

In addition to manicures and pedicures, Tips To Toes on Figueroa Street offers other beauty treatments such as facials and waxing. The salon attracts most of its business from students at the nearby University of Southern California, and for the first time in ten years, Jang said she is unable to predict the busy cycles.

“Before, I always knew that during the midterm and finals seasons, I would have no customers. The busy seasons were before spring break, back to school and sorority rush. I would always have more people working Thursday and Friday before the weekends, but I can’t read customers’ minds anymore,” Jang said.

For this reason, Jang said she thinks secular rather than cyclical shifts affect the salon more. But the recession and the government shutdown, as well as the abundance of cheap nail salons, have taken a toll on her profits. She said that after the 16-day-long shutdown in October, she lost 40 percent of her customers in the area.

“Because people were laid off, it made them think they should be careful,” she said.

In 2006, the housing costs reached a peak in Southern California and Jang saw a boom of customers. “They must have thought they had a lot since the value of their homes had gone up,” she said. But then, after the bubble burst and prices fell in 2007, the swell of business dried up. “Some people came regularly, but when we heard they were looking for a place to live, they stopped coming.” The other businesses in the same office plaza have struggled too: “there was an acupuncture place next door that was doing good business before the economy went bad, but they had to move two years ago,” Jang said.

Jang has had to contend with salons that offer increasingly lower prices for the same services.

“I think what I charge is pretty standard,” she said ($16 manicure, $21 pedicure). “I don’t know how they can survive that way, unless the owners have husbands or someone to support them.”

Indeed, Jang’s hunch may be correct. Some salons set their prices so low that they cannot maintain a healthy business. Last summer, ABC News reported on a 20/20 investigation that revealed that many salons are unsanitary. In California, investigators found tuberculosis-related bacteria in 16 of the 18 spas they checked. According to an expert in salon-related infections aiding the investigation, competition is so high that discount salons may skimp on skilled technicians and high-quality disinfectant to keep their prices low.

In 2009, TIME magazine reported that nail salons nationwide took a 25 percent revenue plunge. During the recession, Jang lost business slowly, since she maintained a base of regular customers from USC. But she said that up until four years ago, she never got phone calls about prices.

Jang plans on keeping the prices on the basics the same, but is considering raising the cost of “extras” such as gel manicures. The reason she has not done this already is because it is difficult for her to attract new customers and she knows the regular ones are willing to pay the current amount. “They care about service, not prices,” she said. When she first opened Tips To Toes, Jang offered a discount in the Daily Trojan for a free tenth visit. But only her regulars benefitted. Now, Jang relies on word of mouth and tries “not to hire beginners,” to keep the quality of her service.

The recession may have affected business in another way: worried about job security after graduation, USC students may have put in more time at the library rather than attending parties, thus creating less of a demand for professional beauty care.

“The girls that come in look tired and like they’re under more stress in the past five years,” Jung said.

But on the other had, a salon visit can also serve as a way to recharge, which is the reason Jung remains optimistic about the future of Tips To Toes.

“The salon is different from a place like Blockbusters (a video rental chain that closed in the U.S.). You feel positive because people come in to relieve stress. It’s a human-to-human service.”

            Five years ago, George Alva, a former private equity investor in the corporate world, opened the doors of his student housing company, Unica Properties, now Mosaic Student Communities. Expanding from a few properties near Berkley and Cal Poly, Mosaic is now a growing competitor in USC-area market, against other more established companies such as StuHo and North University Park Properties (NUPP). Although starting fresh in a neighborhood with a plethora of student housing companies, Alva hopes to attract students through a slightly different type of business plan.

“I enjoy serving the student community, and I’ve really enjoyed the results from renovating these old, beat-up homes and bringing them back to life for people to enjoy once again. We think most of USC student housing providers have terrible to mediocre customer service and property management. We intend to set a new standard in the neighborhood.” Mosaic markets itself by appealing to specific groups of students, like sports teams, film students, or clubs. They hope by doing so, they can draw more community-oriented groups of students away from other, less personal housing companies (the aforementioned StuHo).

“Student real estate is more restrictive than other kinds of real estate because you can only buy property around university campuses, which narrows your target market,” Alva admits. “It’s very management-intensive, because every year you need to lease out all of your units again, while dealing with inspections, repairs, and prepping for new tenants.” However, there are benefits to a student market. “Real estate is cyclical in general, but student housing is insulated from that cycle because there are always going to be an influx of students.”

One only has to look around the USC/West Adams area to guess that the financial crisis would affect local homeowners and neighborhoods. However, for Alva, “[t]he housing crisis was the best thing that happened to my business, as I started buying properties in this area at very low prices.” For a housing company it’s acquire or be acquired. “NUPP had to sell six properties during the crisis, and have been left in a worse off position than companies that were able to purchase properties instead.” Those who can’t acquire are left behind. Not wanting to sound cold, Alva states it was just the “right place at the right time”, as his business arrived a year after the housing bubble burst, not to mention most of the properties bought were “almost abandoned and in really bad shape…a lot of people wanted to sell.” And unlike StuHo, who usually tear the original properties down to build new, larger units on top, Mosaic keeps more than the foundations of these sometimes historic houses in an effort to truly revitalize the past.

Perhaps surprisingly, the USC student housing market has only grown in the last five years. With the arrival of huge, luxury complexes such as Icon Plaza, Gateway, Tuscany, and the Lorenzo, “the USC area has become a much more desirable place to be.” Instead of fearing these monstrously big developments, Alva welcomes them. “Despite the increased supply, when, theoretically, prices should go down, these new developments are bringing more and more students back to the USC area.” Alva’s desired customer base also differs from students who would move into such complexes. “We cater to larger groups of students, groups of friends usually, who want to live in a house together.” In other words, Mosaic is a different type of honey, attracting a different flock of bees.

That’s not to say Alva disregards the growing USC real estate market. Alva brings up the future University Village/USC Village development. “The 1.1 billion dollar UV project starting in May will add 4000 units over 15 years.” Alva theorizes it will make the North University Park a more college-town-like environment. “Everyone will want to live around USC, students and young alumni alike. It’s becoming less of a commuter school than it was ten years ago…the more you have improvements from big developments, the more the tide rises. And rising tides lift all boats.” At least, it lifts the smart boats. Mosaic been forecasting the UV development, and is in the process of purchasing more houses in the North University Park area. The following map displays Mosaic’s current properties (marked with yellow houses), and the area where they hope to purchase and develop new properties (marked with the red circle) in response to the coming UV development (the blue mark in the lower right portion of the circle):

            “The smart move is to grow into the North University area in order to meet the incoming business.” Alva hopes such planning will put the young Mosaic ahead of the “more aggressive, and deep-pocketed” StuHo. “The biggest challenge is finding new, well-priced properties. That’s what I worry about at night. The important question to never stop asking is: How are we going to keep growing?”

           It began in 2009, near the mountains of Northern California, the Cradle of Digital Civilization…Google headquarters. Hal Varian, the company’s economic analyst, was struck with an idea: What if Google search queries could be accurately used as an economic indicator? Now, the national banks of Britain, Italy, Spain, Israel and others, along with the US Federal Reserve, have followed up with studies of their own. The results? An intriguing “probably”.

Known as the Google Domestic Trends Index, it can be accessed by anyone simply through, you got it, searching Google. Unlike a lot of indexes which merely act as trailing indicators, the Google Index can act as a current, if not leading, indicator. While it takes most index reports a few weeks or more to gather data and report, Google “makes its updated data available one to three days after searches”.

            Take, for example, the above graph of Google searches related to buying automobiles. The US governments Cash for Clunkers program launched in July ’09, and, accordingly, the searches for buying and selling cars increased dramatically. Not limited only to cars…

            This graph catalogs Google searches relating to unemployment and unemployment benefits. From the time of the ’08 recession on, the increase is visibly clear. With many other examples, there appears to be a clear relation between Google searches and real fluctuations in the US economy.

With research on the dependability and accuracy of the Google Index currently ongoing by many inside and outside the US, its move toward acceptance marks an exciting and modern evolution of economic indicators and the way we can watch the interaction between the “digital” and real world in almost real-time these days; a real-time Census in some ways.

However, there are some who warn that utilizing Google as a true indicator right now might be a risky thing to depend on. Lucrezia Reichlin, of the London Business School, thinks that, while “Google is sexy” and may prove useful as the Internet Age progresses, more time is needed. Its search figures only go back to 2004, and it doesn’t take into account those who don’t use the Internet as often (namely, the “elderly and the poor”).

Progress, though, might be the key word. The Internet is an ever-expanding tool and the number who don’t interact with it shrinks every day. Circling back around to Google, Project Loon aims to bring easy internet access to those who are in more out-of-the-way, remote, or impoverished locations via high altitude Wi-Fi balloons. Greater connectivity will make this small world even smaller, and the reliability and correlation of Internet searches to market trends will only increase. There are already some studies that claim models using the Google data more accurately reflect real market movement than models excluding the data. The future is now. Probably.

Links: Businessweek “Google: Central Banks’ New Economic Indicator” by Aki Ito & Alisa Odenheimer, August 9^th 2012. http://www.businessweek.com/articles/2012-08-09/google-central-banks-new-economic-indicator

Google Domestic Trends; http://www.google.com/finance?q=GOOGLEINDEX_US%3AUNEMPL&ei=eUrcUsjKCYqWiQLmCQ