Manhattan Institute for Policy Research.
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No. 89 June 2014

America’s Top Metros: Who’s Leading the Recovery, and Why

Tom Gray
Robert Scardamalia

Executive Summary

Will Texas Hit The California Wall?, Tom Gray, Houston Chronicle, 7-20-14
The Numbers, Philosophy Behind The Rust Belt's Recovery, Tom Gray, McClatchy-Tribune News Service, 7-11-14
When the times are good..., Editorial, Houston Chronicle, 7-21-14
How Texas metro areas compare economically, Editorial, Houston Chronicle, 7-20-14
Manhattan Institute ranks 100 largest metros by economic performance, City Data, 7-9-14
Texas Beats California: No Income Tax, Booming Economy, Friendly Folks, The New American, 7-8-14
A Look At Urban Economies, Urbanophile, 6-27-14
Detroit is troubled, but on the rise, Editorial, Detroit News, 6-24-14
Kansas college towns rank poorly in recession recovery, Kansas Watchdog, 6-24-14
Linked on RealClearPolicy, 6-23-14
Today’s Policy Agenda, National Review Online, 6-20-14
Linked on RealClearMarkets, 6-20-14
Which U.S. Cities Are Leading the Recovery?, National Center for Policy Analysis, 6-18-14
NPR Texas "The Source with David Martin Davies Show", 7-21-14
UPCOMING: San Jose, California, 7-23-14
Austin, Texas, 6-26-14
New York City, 6-17-14
Table of Contents:
Executive Summary
About the Author
Part 1: Who Are the Leaders and Laggards?
Part 2: What Separates Leaders from Laggards?
Part 3: 2013 Jobs Data—Who Has Momentum?
Part 4: Toward a Growth Policy—Some Lessons Learned
APPENDIX: ALL MSAs, Ranked by 2009–2012 Economic Indicators Performance

In a slow, uneven economic recovery, some cities have managed not only to survive but even to thrive. Their stories, along with those of the not-so-successful, are the subject of this study. Using data since 2009 for the nation’s metropolitan statistical areas (MSAs), we identify leaders and laggards as measured by growth in economic output (GDP), personal income, and jobs. Among the 100 largest MSAs—which together make up about two-thirds of the nation’s population—we take a detailed look at the top 20 and bottom 20 economic performers. For each of these metros, we examine a number of factors that may be spurring its growth or holding it back: What are the dominant industries? What types of occupations have grown the most (or the least) in income and job count? Where are tax policies most and least friendly to business? Which MSAs have the most college graduates? Which have the most Fortune 500 companies? Which depend most and least on government for jobs and income?

This analysis turns up no simple formula for success but does lead to some tentative conclusions about the conditions that help foster economic leadership in today’s economy. Here are some key findings:

  • Global centers of technology and energy, such as San Jose and Houston, had a fast start in the recovery and continued to prosper through 2013. MSAs with a manufacturing-based economy, such as Detroit, Cleveland, and Toledo, were fast out of the gate but showed signs of slowing last year.

  • The Texas success story continues. The Lone Star State’s four largest MSAs are in the top-performing 20, and none of its MSAs are in the bottom 20. Other large states have mixed results. California has three MSAs in the top 20, but four in the bottom 20. Florida has no top-20 MSAs, but four in the bottom 20. New York has no MSAs in either group.

  • Higher educational attainment, as measured by the percentage of college graduates, was associated with greater economic success, though there were exceptions.

  • MSAs with higher levels of employment in the “professional, scientific, and technical sector” category tended to outperform those with a lower share of these occupations.

  • The top 20 performers have a generous share of large corporate headquarters—154 (31 percent) of the Fortune 500 companies. The bottom 20 had just 36 (7 percent).

  • Leading MSAs, in general, depend less than laggards do on public-sector spending and jobs.

  • Business tax climate is hard to measure but may matter. Some MSAs in high-tax environments have done well, while some in low-tax states have languished. There is evidence that growth may be affected by tax burdens specifically on new business investment.

  • Laggards are more likely to suffer from a home-building hangover. A number of Sun Belt metros in Florida, Arizona, Nevada, and inland California depended on construction for a sizable share of jobs and economic growth before the recession. Since then, they have been slow to recover. Top performers have been less affected by the housing boom and bust.

  • The jury is still out on the Rust Belt renaissance. Old industrial powerhouses of the upper Midwest recovered sharply just after 2009, but time will tell if this was just a statistical fluke—the result of having fallen so low that any improvement is magnified—or the start of true long-term prosperity. One MSA in this group, Grand Rapids, continued to thrive through 2013.

If there is one lesson here for policymakers, it is to understand the inherent strengths of a place and to make the most of them. This commonsense advice is not always heeded, especially when natural resources are at issue. Metros with oil and gas wealth can choose to exploit these assets or leave them in the ground. For the foreseeable future, the first of those options is likely to make them richer, if not greener. Local governments and business leaders also need to heed demographic trends and take advantage of them. Whatever happens at the policy level, health care will be a source of steady growth as the population ages. Metros that earn a reputation for excellence in medicine stand to gain by serving not only their own residents but also those who come from elsewhere to receive world-class care. And whatever the comparative advantages a metro can claim, it is always wise to observe the rule of “do no harm” in dealing with job-producing businesses. Measuring business-friendliness is an inexact science at best, but a reputation for high costs and overregulation is never a good thing to have.

About the Authors

Tom Gray is a writer, editor and communications consultant whose work has covered a wide range of fields, including investor relations, personal finance, health care, engineering, scientific research, and local, state, and national politics. He has written for publications and websites such as City Journal, the Daily Beast and Investor’s Business Daily (where he also served as senior editor), and has authored three books on online investing published by John Wiley & Sons. He was co-author, with Bob Scardamalia, of the Manhattan Institute’s 2012 study, “The Great California Exodus: A Closer Look.” As editorial-page editor of the Los Angeles Daily News, Gray won a number of awards for writing and editing, including first place awards for editorial writing from the California Newspaper Publishers Association and the Inland Daily Press Association. He also has provided marketing and communications services for business and not-for-profit clients including Deloitte & Touche, ValueOptions Inc., the Kavli Foundation, the Synthetic Biology Institute at the University of California, Berkeley, and the University of California, Santa Barbara. A graduate with distinction from Stanford University, Gray also has master’s degrees in English and business administration.

Robert Scardamalia is president of RLS Demographics, Inc., a firm specializing in the use and analysis of economic and demographic data for private and public applications. His consulting practice includes public and private clients focused on topics related to migration, aging, disability, consumer marketing and business demographics. Scardamalia was formerly director of the Center for Research and Information Analysis in the New York State Department of Economic Development and also served as chief demographer of the State of New York and director of the State Data Center. He has served on numerous state and national advisory committees for the Census Bureau, as well as for other state and federal statistical agencies. Scardamalia is past President and Board member of the Association of Public Data Users and serves on the Board for the Center for Social and Demographic Analysis at the State University of New York at Albany, where he is also an adjunct faculty member. He was co-author, with Tom Gray, of the Manhattan Institute’s 2012 study, “The Great California Exodus: A Closer Look”. Scardamalia holds a bachelor’s degree in sociology from Penn State University and a master’s degree in demography from Georgetown University.


By any measure, it has been a long slog for the American economy as it struggles to recover from the Great Recession. It has now been five years since employment last peaked, and growth has not yet made up for the lost jobs. At last report (March 2014), payrolls were about 437,000 jobs short of prerecession highs. To put it another way, the economy had failed in 60 months to reach a goal that took it 28 months after the recession of 1981–82; 32 months after the slump of 1990; and 48 months after the recession of 2001. Unemployment remains stubbornly high—especially when workers who have given up looking for jobs and those forced to settle for part-time work are taken into account. Household incomes have yet to bounce back from the hit they took in the recession. If this is a recovery, it doesn’t feel like one to most Americans.

But if the national picture is gloomy, it is not uniformly so. There are places in the U.S. that really have bounced back. They have more than made up for their lost jobs and have made substantial gains in output and personal income. For some, especially the manufacturing-based metropolitan statistical areas (MSAs) of the upper Midwest, the jury is out on whether their recovery is sustainable. But other metros that were fast out of the gate seemed to be maintaining their growth in to 2013. These include large metros that, by their sheer size, have had a significant impact on state and national economies.

When it comes to creating jobs, top-performing metropolitan statistical areas have punched well above their weight. The four largest MSAs in Texas, for instance, constitute 5 percent of the U.S. population but have generated 10 percent of the nation’s new jobs since the recession bottomed out four years ago. Two California MSAs, San Jose and San Francisco, have produced 27 percent of the state’s job growth, with less than 17 percent of its population. The Nashville MSA includes about 27 percent of Tennessee’s population but has accounted for 54 percent of its employment growth since the end of 2009. The benefits of such growth spread beyond metro area boundaries—to state finances, among other things. In California, the surging wealth of Silicon Valley produced the tax revenue needed to end the state’s decade-long budget crisis. Texas lawmakers who sat down to write their two-year budget in 2011 were facing a shortfall of up to $27 billion; two years later, thanks to the state’s recovery, they were greeted with a projected surplus of $8 billion.

Not everything is going wrong in the American economy, in other words. And much of what goes right is occurring in a select group of dynamic MSAs. These are the focus of this study, which identifies the leaders among MSAs and suggests reasons for their success. Part 1 of our paper presents our rankings—how metros compare on measures of growth in output, income, and jobs. Part 2 takes a close look at the economies and resources of leaders and laggards. We end with Part 3, which addresses the question facing state and local policymakers and business leaders: What can we do to succeed? Economic leaders among the MSAs have certain traits in common. Some are hard to emulate, such as having vast amounts of oil and gas under your feet. But others are matters of attitude and choice, such as deciding how much to restrict drilling for these riches. Business climate is another factor that cannot be ignored, though it is difficult to measure. And any metro area needs to know and make use of its comparative advantage: What does it do better, at less cost, than competitors at home and abroad, and how can it find ways to do more of this?

This is the question, of course, that Adam Smith asked about nations. In our day, when goods and services trade worldwide as easily as they were exchanged between neighboring villages in Smith’s day, it’s a question that cities and regions need to be asking themselves.

Part 1: Who Are the Leaders and Laggards?

The United States is richly endowed with farms, forests, and oil fields, but most of its economic activity, by far, springs from its cities. In a 2012 report, the U.S. Conference of Mayors noted that America’s metropolitan statistical areas accounted for 83.7 percent of its population, 85.8 percent of its jobs, 89.9 percent of its wage and salary income, and 90.7 percent of its real GDP. Of the 100 largest economies in the world, 37 belong to U.S. MSAs. Metro areas truly drive the U.S. economy.

They also give us an economic portrait of the country, in some ways more true to economic life than a map of the states. Each metro area is a distinct economy, made up of residents whose lives and work are tied to one or more urban hubs. They have distinct identities based on their key businesses, their geography, political attitudes, education, culture, and local history. In some cases, they set the tone for the economy of a whole state, or several states at once. In others, MSAs within a state can follow different paths, with differing levels of success. Some lead and some lag, even under the same state laws and regulations.

For these reasons, one can draw a picture of America’s uneven recovery by identifying the best- and worst-performing MSAs since the recession. For this study, we have focused on three areas—personal income, gross domestic product, and private-sector job growth—on the MSAs (357 in all) for which these data are available for 2009–12. The job growth numbers, from the Bureau of Labor Statistics (BLS), are aggregate totals of private-sector employment. The personal income and GDP numbers, from the Bureau of Economic Analysis (BEA), are constant-dollar per-capita figures. Private-sector job growth is computed from annual average totals for nonfarm, nongovernment employment. We ranked MSAs in each of the three areas and gave them an overall rank based on the average of the three. Our goal was to measure how well these metros produced wealth for their residents in the first three years of the recovery.

Tables 1 and 2 show the top 20 and bottom 20 performers in our all-metros ranking. Most are smaller MSAs (below the median population of 259,000), though there are some standout big metros in the top 20: San Jose, Nashville, Grand Rapids, Detroit, and Houston. (The full list can be found in the Appendix.)

Some of the smaller MSAs have made dramatic moves in the recovery. Kokomo, Indiana, rode the U.S. manufacturing revival to an eye-popping 65.2 percent jump in its per-capita GDP from 2009 to 2012. The oil and gas boom helped Midland, Texas, produce a rise of 56.2 percent in per-capita income—all the more impressive amid a population boom (up 7.6 percent in just three years). It also expanded private-sector employment by 25.3 percent. At the other end of the scale are metros hard-hit and slow to recover. In Gulfport-Biloxi-Pascagoula, Mississippi, per-capita GDP fell 8.7 percent, and the job count in 2012 was lower (by 0.9 percent) than in the recession year of 2009. Other MSAs had especially steep job losses: 4.9 percent in Dalton, Georgia; and 4.5 percent in Rocky Mount, North Carolina, for instance.

But it is large MSAs that primarily drive the economy (or hold it back). To get a clearer picture of the significant leaders and laggards, we turned our focus to the 100 largest MSAs, based on their 2012 population. This group ranges from the giant New York City metro area, at 19.8 million, to Spokane, Washington, at 532,000. All told, these 100 metros have a total population of 208 million, more than two-thirds of the U.S. total.

Table 3 shows the leaders and laggards among these large metros (that is, the top and bottom 20) by state. It’s not hard to see which states have come out ahead. Texas and Ohio each have four top performing metros and no also-rans. Florida has only laggards, while California has a mix, with three MSAs from the top 20 and four from the bottom. Some large states, such as New York and Illinois, do not have metros in either category.

Table 4 shows all the 100 largest MSAs, with the top 20 and bottom 20 performers highlighted. We include their rankings in three categories and average the three for an overall rank.

Next, we take a closer look at the top and bottom 20 large MSAs, with some key data, including 2012 populations; economic performance; leading categories in earnings and job growth; and the number of Fortune 500 companies (largest listed first) headquartered there. The earnings growth leaders shown here are the North American Industrial Classification System (NAICS) sectors that contributed the largest share to an MSA’s overall increase in nonfarm earnings in 2009–12. The job growth leaders are the BLS occupational categories with the largest number of new jobs in the same period. The percentage growth in these categories in 2009–12 is given in parentheses. (Note: The NAICS “Mining” industry category includes oil and gas production.)

First, the leaders, by performance rank:

1. San Jose–Sunnyvale–Santa Clara, CA
Population: 1,894,388
Per-capita GDP growth: 15.9%
Per-capita personal income growth: 22.6%
Private-sector job growth: 7.1%
Earnings growth led by: Manufacturing (+29.3%)
Job growth led by: Professional and business services (+12.0%)
Fortune 500 companies: Apple, Hewlett-Packard, Intel, Google, Cisco Systems, 10 more

What’s good for Apple is good for Silicon Valley, and Apple has been having some very good years. From 2009 to 2012, its revenue more than quadrupled, to $156.5 billion. Google’s sales more than doubled in that time, to $52.2 billion. But how long will this party last? The San Jose MSA has a boom-and-bust history. At the end of 2013, its total job count was still 12 percent short of the highs that it hit in 2000, at the height of the dot-com mania.

2. Nashville-Davidson-Murfreesboro-Franklin, TN
Population: 1,726,693
Per-capita GDP growth: 9.0%
Per-capita personal income growth: 14.6%
Private-sector job growth: 9.8%
Earnings growth led by: Health-care and social assistance (+18.4%)
Job growth led by: Professional and business services (+23.1%)
Fortune 500 companies: HCA Holdings, Dollar General, Vanguard Health Systems

Nashville is a standout performer in an otherwise lackluster state. It lost some 50,000 jobs in the recession and has regained about twice that number. Among other large Tennessee metros, Knoxville is just now getting back to its pre-slump recession level, while Memphis and Chattanooga (like the state as a whole) remain behind. What makes the difference for Nashville? The roster of big companies suggests one factor—the city’s major role in the health-care industry. And as the capital of country music, Nashville draws tourists as well as a large part of the entertainment industry.

3. Grand Rapids–Wyoming, MI
Population: 1,005,648
Per-capita GDP growth: 11.5%
Per-capita personal income growth: 13.5%
Private-sector job growth: 9.1%
Earnings growth led by: Manufacturing (+20.6%)
Job growth led by: Professional and business services (+28.1%)
Fortune 500 companies: None

Grand Rapids reminds us that Michigan manufacturing is not all about automobiles. If this MSA has one signature industry, it is office furniture: Steelcase, Herman Miller, and other global leaders in the industry are based here. The good news is that Grand Rapids profits from business expansion—more employees mean more chairs and desks. The risk is that business contraction has the opposite effect. Then again, people will still need shoes (Wolverine Worldwide) and might take a shot at selling for Amway (based here). So far, the diverse economy of Grand Rapids has served it well in the recovery, with a boost from an increasingly friendly Michigan business climate.

4. Houston–The Woodlands–Sugar Land, TX
Population: 6,177,015
Per-capita GDP growth: 6.3%
Per-capita personal income growth: 17.8%
Private-sector job growth: 7.6%
Earnings growth led by: Mining (+76.7%)
Job growth led by: Professional and business services (+13.1%)
Fortune 500 companies: Phillips 66, ConocoPhillips, Enterprise Products, Sysco, 21 more

Houston is the hub of an industry—oil and gas—that is notorious for wide swings in demand and price. At least since the 1980s, though, this MSA has had remarkably smooth and robust growth, powering through recessions and quickly recovering. Following a pattern seen in other metro economies with strength in manufacturing or energy production, it has seen its sharpest earnings growth in the BEA’s “mining” category (which includes oil and gas production), while the largest share of new jobs has come in “professional and business services”—including the many businesses and occupations that supply and support the drillers and refiners.

5. Detroit-Warren-Dearborn, MI
Population: 4,292,060
Per-capita GDP growth: 14.5%
Per-capita personal income growth: 12.5%
Private-sector job growth: 6.9%
Earnings growth led by: Manufacturing (+28.7%)
Job growth led by: Professional and business services (+14.6%)
Fortune 500 companies: General Motors, Ford Motor, TRW Automotive, Lear, 8 more

Detroit, the city, languishes in bankruptcy. But the economy of its suburbs—making up most of the Detroit MSA—saw healthy growth from 2009 to 2012. The recovering auto industry boosted earnings from durable-goods manufacturing (the category covering cars, trucks, and parts) by 30.4 percent. The area also gained 36,800 new manufacturing jobs, not far behind the 43,600 jobs gained in the broad “professional and business services” category. These numbers need to be seen in context: Detroit’s economy is coming off the worst slump since the Great Depression, and its comeback is impressive—in percentage terms—partly because it was starting from such a low base. Slowing job growth in 2013 raised the question of how long the recovery can be sustained.

6. Austin–Round Rock, TX
Population: 1,834,303
Per-capita GDP growth: 8.8%
Per-capita personal income growth: 12.1%
Private-sector job growth: 10.9%
Earnings growth led by: Professional, scientific, and technical services (+27.3%)
Job growth led by: Professional and business services (+17.2%)
Fortune 500 companies: Dell, Whole Foods

“Austin envy,” as blogger Marian Salzman has called it, is still going strong. The Texas capital has some built-in recession-proofing—it hosts the government and largest university of a large, fast-growing state—plus a brand that attracts young, well-educated workers. Set against San Francisco or Silicon Valley, it’s hotter in summer, but more business-friendly and far more affordable. Apple employs some 3,500 people here and is expanding in Austin with a new 1 million-square-foot facility expected to add another 3,600 jobs.

7. Dallas–Fort Worth–Arlington, TX
Population: 6,700,991
Per-capita GDP growth: 6.4%
Per-capita personal income growth: 12.4%
Private-sector job growth: 6.2%
Earnings growth led by: Professional, scientific, and technical services (+18.0%)
Job growth led by: Professional and business services (+13.3%)
Fortune 500 companies: ExxonMobil, AT&T, Fluor, AMR, Kimberly-Clark, 13 more

The largest Texas MSA (and fourth-largest in the nation) has a strong presence in several major sectors—including energy, transportation, telecommunications, technology, and consumer products. The fact that it attracts and keeps such a diverse mix of corporate leaders suggests that its success rests less on a particular industry and more on its reputation as a good place, in general, to do business. Of all the metros that consistently outperform their peers, Dallas–Fort Worth may testify the most to the benefits of a friendly business climate.

8. San Antonio–New Braunfels, TX
Population: 2,234,003
Per-capita GDP growth: 7.1%
Per-capita personal income growth: 13.0%
Private-sector job growth: 6.0%
Earnings growth led by: Finance and insurance (+31.3%)
Job growth led by: Education and health services (+10.0%)
Fortune 500 companies: Valero, Tesoro, United Services Auto Association, 2 more

San Antonio has a diversified economy and strong ties to the military. In recent years, it has benefited from the Pentagon’s Base Realignment and Closure Round (BRAC), which has closed bases elsewhere and consolidated functions in a dozen “joint base” locations, including San Antonio. Oil production from the nearby Eagle Ford shale formation also has contributed to the metro’s recovery: earnings in the “mining” category were up 148.6 percent.

9. Pittsburgh, PA
Population: 2,360,733
Per-capita GDP growth: 9.4%
Per-capita personal income growth: 13.7%
Private-sector job growth: 4.5%
Earnings growth led by: Mining (+156.5%)
Job growth led by: Professional and business services (+10.8%)
Fortune 500 companies: United States Steel, PNC Financial Services, PPG Industries, 6 more

Pittsburgh’s recent economic performance says a lot about its location. The MSA sits atop the Marcellus shale formation, and the drilling boom there has led to a sharp rise in oil-related earnings and employment. Jobs in the “mining and logging” category (oil and gas included) rose by 77 percent, from 5,600 to 9,900, between 2009 and 2012. The 156 percent spike in “mining” earnings amounted to a $1.5 billion increase in just three years.

10. Youngstown-Warren-Boardman, OH-PA
Population: 558,206
Per-capita GDP growth: 10.3%
Per-capita personal income growth: 13.0%
Private-sector job growth: 3.9%
Earnings growth led by: Manufacturing (+32.7%)
Job growth led by: Manufacturing (+16.6%)
Fortune 500 companies: None

Youngstown’s recovery is another story with an oil-and-gas angle. The MSA is over the Marcellus and Utica shale formations, but has not seen as much drilling activity as areas to the south and east. However, drillers’ supply needs are giving Youngstown’s manufacturing sector a boost. In 2012, the French firm Vallourec opened a $1.1 billion steel-pipe plant in the Youngstown area, producing 350 jobs. This was the first mill to open since steelmakers abandoned Youngstown three decades ago.

11. Indianapolis-Carmel-Anderson, IN
Population: 1,928,982
Per-capita GDP growth: 5.7%
Per-capita personal income growth: 12.0%
Private-sector job growth: 5.9%
Earnings growth led by: Health-care and social assistance (+19.7%)
Job growth led by: Professional and business services (+14.1%)
Fortune 500 companies: WellPoint, Eli Lilly, Simon Property Group

Manufacturing still matters in the Indianapolis MSA: it accounts for some 84,000 jobs, or 9 percent of total employment. But it doesn’t count for as much as it once did. The recession accelerated a decline that began at the turn of the last century, and most of the lost jobs have not come back. Indianapolis has made up the loss with growth in services, particularly health-care. Jobs in the BLS “education and health services” category have been making a steady, recession-proof climb since at least 1990. As for earnings, the largest share of these came in the BEA’s “health-care and social assistance” category during the recovery.

12. Columbus, OH
Population: 1,944,002
Per-capita GDP growth: 4.7%
Per-capita personal income growth: 13.4%
Private-sector job growth: 5.6%
Earnings growth led by: Government and government enterprises (+16.7%)
Job growth led by: Education and health services (+14.4%)
Fortune 500 companies: Cardinal Health, Nationwide, American Electric Power, 2 more

Columbus, like Austin, hosts a state government and a major public university. It appears to depend more than its Texas counterpart on the public sector, however. State government alone accounted for nearly $1.5 billion in earnings growth from 2009 to 2012. So its future prosperity is tied somewhat to that of the whole state. But it has its own growth potential in a substantial corporate sector, led by drug distributor Cardinal Health and insurer Nationwide.

13. Toledo, OH
Population: 608,711
Per-capita GDP growth: 11.8%
Per-capita personal income growth: 11.2%
Private-sector job growth: 4.4%
Earnings growth led by: Manufacturing (+26.8%)
Job growth led by: Manufacturing (+13.5%)
Fortune 500 companies: Dana Holding, Owens-Illinois, Andersons, Owens Corning

Another industrial region on the rebound, the Toledo MSA enjoyed an especially big leap (36 percent) in earnings from durable-goods manufacturing between 2009 and 2012. This is a sign that Toledo is making plenty of things—tradable goods—that people outside its modest-size market want to buy. Looking ahead, Toledo will be an indicator of how durable America’s manufacturing comeback really is.

14. Portland-Vancouver-Hillsboro, OR-WA
Population: 2,289,800
Per-capita GDP growth: 13.8%
Per-capita personal income growth: 10.7%
Private-sector job growth: 4.3%
Earnings growth led by: Manufacturing (+23.1%)
Job growth led by: Professional and business services (+11.0%)
Fortune 500 companies: Nike, Precision Castparts

One factor in the success of the Portland MSA is growth in computer-related manufacturing—what might be called a Silicon Valley spillover effect. Tech giants based in the San Jose MSA have been expanding into areas that are more affordable while still attractive to engineers and other high-skilled workers. The industrial corridor between the suburbs of Hillsboro and Beaverton has been nicknamed “Silicon Forest.” One company alone, Intel, hired some 3,400 workers from 2009 to 2012, bringing its total employment in the Portland area to 16,300. Durable-goods manufacturing (which includes chip-making) accounted for the largest share of earnings growth in Portland’s recovery.

15. Minneapolis–St. Paul–Bloomington, MN-WI
Population: 3,422,264
Per-capita GDP growth: 6.2%
Per-capita personal income growth: 11.9%
Private-sector job growth: 4.5%
Earnings growth led by: Finance and insurance (+26.1%)
Job growth led by: Professional and business services (+10.5%)
Fortune 500 companies: UnitedHealth Group, Target, Best Buy, CHS, 14 more

Diversification works well for Minneapolis–St. Paul. As a recent Brookings Institution study notes, the region has “a unique mix of company headquarters, precision manufacturing, financial services, and health and medical technologies.” Eighteen Fortune 500 companies are based here. Some of the nation’s most recognizable brands, from Scotch Tape to Cheerios, come from Minneapolis–St. Paul, and the metro has a strong position in the health-care economy. It hosts the giant insurer UnitedHealth and the two largest medical device companies, Medtronic and St. Jude Medical.

16. Cleveland-Elyria, OH
Population: 2,063,535
Per-capita GDP growth: 7.5%
Per-capita personal income growth: 14.2%
Private-sector job growth: 2.7%
Earnings growth led by: Manufacturing (+16.7%)
Job growth led by: Professional and business services (+8.5%)
Fortune 500 companies: Progressive, Parker Hannifin, Sherwin-Williams, 2 more

Like Detroit and other MSAs linked economically to the auto industry, the Cleveland MSA saw an early and brisk recovery after 2009 as manufacturing revived. Cleveland also has assets beyond its historical manufacturing core. Its young health-care businesses, for instance, attracted more venture capital in 2012 than any other midwestern market, including Chicago and Minneapolis. It lost jobs in 2013, however, raising doubts about the sustainability of its recovery.

17. San Francisco–Oakland–Hayward, CA
Population: 4,455,560
Per-capita GDP growth: 3.4%
Per-capita personal income growth: 15.7%
Private-sector job growth: 4.6%
Earnings growth led by: Professional, scientific and technical services (+49.4%)
Job growth led by: Professional and business services (+12.6%)
Fortune 500 companies: Chevron, McKesson, Wells Fargo, Safeway, Oracle, 13 more

San Jose’s larger neighbor, the San Francisco–Oakland MSA, has some of the same growth drivers—software (Oracle) and social media (Facebook)—that power Silicon Valley. But it is more broadly diversified, with one of the nation’s biggest banks (Wells Fargo) and the second-largest oil company (Chevron) within its borders. Like the larger Dallas–Fort Worth MSA, San Francisco–Oakland MSA boasts 18 Fortune 500 companies. Like San Jose, it is an expensive place to live and do business, but so far in this recovery, its natural assets—including an ideal climate and a highly educated workforce—have outweighed its disadvantages.

18. Baltimore-Columbia-Towson, MD
Population: 2,753,149
Per-capita GDP growth: 6.6%
Per-capita personal income growth: 11.3%
Private-sector job growth: 3.9%
Earnings growth led by: Government and government enterprises (+12.6%)
Job growth led by: Professional and business services (+13.4%)
Fortune 500 companies: None

Between 2009 and 2012, the Baltimore MSA lost its last Fortune 500 company when Black & Decker was acquired by Connecticut-based Stanley Tool Works. Manufacturing and corporate management did not contribute significantly to its recovery, but government work did. Yearly earnings from federal civilian employment, for instance, rose 24 percent, or $2 billion, and growth in this sector results in a spinoff of indirect private-sector employment, especially in professional and business services. This area has long been an administrative center for the federal government—both Social Security and Medicare/Medicaid are headquartered in the Baltimore suburb of Woodlawn, for instance. Politics, as much as economics, may determine how much employment grows here.

19. Boston-Cambridge-Newton, MA-NH
Population: 4,640,802
Per-capita GDP growth: 6.3%
Per-capita personal income growth: 11.3%
Private-sector job growth: 3.9%
Earnings growth led by: Professional, scientific and technical services (+17.4%)
Job growth led by: Professional and business services (+6.9%)
Fortune 500 companies: Liberty Mutual, TJX, Staples, Raytheon, 6 more

Boston has played to its strengths in its recovery, growing fastest in those fields (professional, scientific, and technical services) that require a highly educated workforce. Its closest West Coast counterpart in this respect is San Francisco–Oakland, which has about the same high proportion of college graduates in its population. Boston has an edge over the Bay Area in housing costs, and Massachusetts tends to score better than California in rankings of business climate.

20. Bakersfield-Delano, CA
Population: 856,158
Per-capita GDP growth (decline): (0.3)%
Per-capita personal income growth: 19.1%
Private-sector job growth: 9.3%
Earnings growth led by: Mining (+65.7%)
Job growth led by: Construction (+26.0%), mining and logging (+34.7%)
Fortune 500 companies: None

Bakersfield—covering California’s Kern County—has a substantial farm economy, a rarity among large MSAs. Annual earnings from its export-driven agricultural sector (led by almonds and pistachios) came to $2.2 billion in 2012, more than double the 2009 total. An upswing in the oil business also helped boost personal income and (nonfarm) jobs. Kern County is the heart of California’s oil country, and interest in the vast potential of the state’s Monterey shale formation—thought to hold more than 15 billion barrels of oil—has helped spur drilling and employment.

Here are the 20 laggards—again, by rank:

81. Jacksonville, FL
Population: 1,377,850
Per-capita GDP growth: 0.6%
Per-capita personal income growth: 9.0%
Private-sector job growth: 2.5%
Earnings growth led by: Finance and insurance (+15.8%)
Job growth led by: Professional and business services (+14.6%)
Fortune 500 companies: CSX, Fidelity National Financial, Fidelity Nat’l Info. Services

Jacksonville has a major seaport and a diversified economy, but its recovery has been held back by the lingering effects of the Florida housing bust. Like most other metros in the bottom 20, it saw construction earnings and jobs drop from 2009 to 2012. There were signs in 2013 that the real-estate slump and its dampening effect on the economy were finally coming to an end. For the year ending December 2013, the BLS reported that construction jobs were up 8 percent.

82. Greensboro–High Point, NC
Population: 736,065
Per-capita GDP growth: 4.3%
Per-capita personal income growth: 7.4%
Private-sector job growth: 0.7%
Earnings growth led by: Manufacturing (+11.3%)
Job growth led by: Professional and business services (+13.4%)
Fortune 500 companies: VF

Greensboro is another MSA that has had to wait for its economy to start bouncing back. Early in 2013, a local business group said that it had finally seen signs of a “fledgling recovery.” Greensboro, like Winston-Salem (see no. 93 below) is making an economic transition from older blue-collar manufacturing, such as textiles and tobacco, to a more diversified mix of high-skill, high-value-added industries. Its manufacturing sector accounted for the largest share of earnings growth from 2009 to 2012, but the 11.3 percent increase here was modest compared with the growth in northern MSAs such as Detroit, Toledo, and Youngstown.

83. Phoenix-Mesa-Scottsdale, AZ
Population: 4,329,534
Per-capita GDP growth: 1.3%
Per-capita personal income growth: 7.2%
Private-sector job growth: 2.8%
Earnings growth led by: Finance and insurance (+20.1%)
Job growth led by: Education and health services (+11.6%)
Fortune 500 companies: Avnet, Freeport–McMoRan Copper & Gold, US Airways, 3 more

The Phoenix metro area lost 100,000 construction jobs—more than half the total—from 2006 to 2009 and has just recently started to gain some of them back. The rest of its economy has come back faster, with leisure and hospitality jobs near their prerecession levels and education and health services continuing a steady climb uninterrupted by the recession. The aftereffects of the residential housing bust finally seem to be fading, with construction jobs up 5.6 percent in 2013 and private-sector jobs overall up 3 percent.

84. Virginia Beach–Norfolk–Newport News, VA-NC
Population: 1,699,925
Per-capita GDP growth: 1.8%
Per-capita personal income growth: 9.5%
Private-sector job growth: 0.1%
Earnings growth led by: Government and government enterprises (+4.1%)
Job growth led by: Education and health services (+7.1%)
Fortune 500 companies: Smithfield Foods, Norfolk Southern, Dollar Tree, Huntington Ingalls Industries

The Virginia Beach–Norfolk area depends more than most other MSAs on defense spending. Unlike San Antonio, another big military town, it has not been a big winner in recent reshufflings of bases and other facilities. In 2011, for instance, the Pentagon shut down the Norfolk-based Joint Forces Command. Government spending still contributed the largest share of earnings growth in the 2009–12 period, but its increase was small compared with Baltimore’s.

85. Milwaukee–Waukesha–West Allis, WI
Population: 1,566,981
Per-capita GDP growth: 2.2%
Per-capita personal income growth: 8.2%
Private-sector job growth: 1.2%
Earnings growth led by: Manufacturing (+16.4%)
Job growth led by: Professional and business services (+10.9%)
Fortune 500 companies: Johnson Controls, Northwestern Mutual, Manpower, 6 more

Milwaukee’s roster of nine Fortune 500 companies makes it a significant corporate center. Its largest firm, Johnson Controls, got a leg up from the revival of the U.S. auto industry (the company makes car batteries and auto interiors). After manufacturing, earnings from corporate management activities contributed the largest share to the MSA’s growth. However, job growth from manufacturing showed signs of peaking as early as 2012, and the job count in this category declined in 2013.

86. Colorado Springs, CO
Population: 688,353
Per-capita GDP growth: 3.1%
Per-capita personal income growth: 7.2%
Private-sector job growth: 0.9%
Earnings growth led by: Government and government enterprises (+15.1%)
Job growth led by: Education and health services (+11.0%)
Fortune 500 companies: None

A sign of the struggle of Colorado Springs to recover can be seen in the data on professional, scientific, and technical services—an industry category with well-paid, highly educated employees. Earnings here fell by 3 percent from 2009 to 2012. At the same time, the MSA leaned increasingly on government for what growth it could muster. Nearly half its overall earnings growth came from federal military and civilian spending. Total job growth was a weak 1.7 percent over the three years, and three-quarters of the 7,700 new jobs came from the public sector.

87. Sacramento-Roseville-Arden-Arcade, CA
Population: 2,196,482
Per-capita GDP growth: 0.2%
Per-capita personal income growth: 9.7%
Private sector job growth: 0.8%
Earnings growth led by: Government and government enterprises (+6.3%)
Job growth led by: Professional and business services (+9.4%)
Fortune 500 companies: None

The Sacramento economy centers on California’s state government, which employs about 70,000 people in the area. All told, the federal, state, and local public sectors employ more than 220,000, some 26 percent of the MSA’s working population. (By comparison, the public-sector average for the U.S. is 19 percent.) Normally, public employment tends to act as a cushion in recessions, but the downturn of the 2000s hit California’s public sector hard. State and local governments retrenched, and Sacramento also went through a real-estate bust. Its slow recovery has been helped by a stabilizing of state finances, though the construction job count is still scraping bottom.

88. Deltona–Daytona Beach–Ormond Beach, FL
Population: 595,309
Per-capita GDP growth (decline): (1.3)%
Per-capita personal income growth: 10.3%
Private-sector job growth: 0.7%
Earnings growth led by: Manufacturing (+26.4%)
Job growth led by: Leisure and hospitality (+5.6%)
Fortune 500 companies: None

This MSA, coterminous with Volusia County, is another Florida metro trying to shake off the effects of the home-building bust on construction and consumer spending. Construction jobs are just starting to revive, and manufacturing has been a bright spot. A number of major companies have plants here, including medical product makers Covidien, Sparton Electronics, and Teledyne Technologies. As in other Florida MSAs, future growth here may depend on how well the state’s business-friendly image and tax policies can make up ground lost in the real-estate debacle.

89. Cape Coral–Fort Myers, FL
Population: 645,293
Per-capita GDP growth (decline): (2.9)%
Per-capita personal income growth: 6.7%
Private-sector job growth: 3.8%
Earnings growth led by: Professional, scientific, and technical services (+30.1%)
Job growth led by: Retail trade (+8.1%)
Fortune 500 companies: None

Like Volusia County on Florida’s east coast, Lee County on the west—the Cape Coral–Fort Myers MSA—has been held back by the prolonged real-estate slump. It has a small manufacturing sector but gets a larger share of earnings from the professional, scientific, and technical services category. Fort Myers is the home of 21st Century Oncology, a medical group serving much of the U.S. and Latin America. Leisure and hospitality is the only job category showing much recent growth.

90. Little Rock–North Little Rock–Conway, AR
Population: 717,666
Per-capita GDP growth (decline): (1.8)%
Per-capita personal income growth: 9.3%
Private-sector job growth: 1.6%
Earnings growth led by: Government and government enterprises (+8.2%)
Job growth led by: Education and health services (+5.3%)
Fortune 500 companies: Dillard’s, Windstream

Unlike most of the bottom 20 on our list, the Little Rock MSA is not trying to dig out from a building slump. Construction earnings rose 11.8 percent from 2009 to 2012, though construction jobs (lumped with logging and mining for this MSA by the BLS) slipped by 1.7 percent. Little Rock’s problem seems to be the lack of robust growth in any sector. It is not held back as much as it is failing to push forward. The leadership of the “government and government enterprises” sector in its earnings growth shows the value of being a state capital, along with the sluggishness of the private sector.

91. Fresno, CA
Population: 947,895
Per-capita GDP growth (decline): (3.1)%
Per-capita personal income growth: 10.4%
Private-sector job growth: 0.5%
Earnings growth led by: Transportation and warehousing (+37.2%)
Job growth led by: Education and health services (+6.5%)
Fortune 500 companies: None

Like Bakersfield, another MSA in California’s San Joaquin Valley, the Fresno metro area has a significant agricultural sector: farm earnings totaled $1.8 billion in 2012, up 38 percent from 2009. But Fresno didn’t have quite as big a farm boom as Bakersfield, which saw earnings rise 106.5 percent. And Fresno doesn’t have Bakersfield’s oil. It has been left with declining construction (the housing boom and bust hit here, too) and an economy that leans heavily on health care and government.

92. Riverside–San Bernardino–Ontario, CA
Population: 4,350,096
Per-capita GDP growth (decline): (0.6)%
Per-capita personal income growth: 7.8%
Private-sector job growth: 2.3%
Earnings growth led by: Health care and social assistance (+14.8%)
Job growth led by: Education and health services (+11.9%)
Fortune 500 companies: None

The “Inland Empire,” as this MSA is called, suffers both from a real-estate hangover and from the sluggish recovery of its giant neighbor MSA, Los Angeles. Riverside–San Bernardino grew explosively in the 1980s and 1990s as workers in more expensive L.A. and Orange Counties moved inland for cheaper housing. Jobs followed them for a time, but employment plunged in the recession and hasn’t come close to reaching pre-slump levels.

93. Winston-Salem, NC
Population: 647,697
Per-capita GDP growth (decline): (1.9)%
Per-capita personal income growth: 9.9%
Private-sector job growth (decline): (0.1)%
Earnings growth led by: Management of companies and enterprises (+123.7%)
Job growth led by: Professional and business services (+17.9%)
Fortune 500 companies: Branch Banking and Trust, Reynolds American

In the heart of tobacco and textile country, Winston-Salem is trying to make the transition to high-value-added fields such as technology and medical research. The recession put roadblocks in its way, including the decision by Dell to close a facility in Winston-Salem because of the weak economy. Manufacturing, which fell sharply in the recession, has continued to lose ground, both in earnings and job count, during the recovery.

94. Spokane–Spokane Valley, WA
Population: 532,253
Per-capita GDP growth: 2.8%
Per-capita personal income growth: 7.2%
Private-sector job growth (decline): (0.5)%
Earnings growth led by: Health care and social assistance (+7.9%)
Job growth led by: Professional and business services (+6.6%)
Fortune 500 companies: None

Spokane’s recovery is weak in most areas, reflecting the lack of fast-growing industries or companies. Its role as a health-care destination for the inland Pacific Northwest gives it a large health-care and social-services sector. This gives Spokane some recession insurance, but it is an inherently slow-growing sector that, by its size, slows down recoveries.

95. Hartford–West Hartford–East Hartford, CT
Population: 1,214,400
Per-capita GDP growth (decline): (3.7)%
Per-capita personal income growth: 8.4%
Private-sector job growth: 1.4%
Earnings growth led by: Finance and insurance (+14.5%)
Job growth led by: Professional and business services (+8.2%)
Fortune 500 companies: United Technologies, Aetna, Hartford Financial Services, 2 more

Hartford and financial services have a long history together. In other places, finance is making a comeback; but it’s making only sluggish progress in the Connecticut capital. Finance and insurance earnings rose 14.5 percent from 2009 to 2012, but other MSAs, such as Minneapolis–St. Paul, at 26.1 percent, have done better in this sector. And Hartford’s job count in financial activities continues a long slide, declining by 2,700. During the same three-year stretch, Dallas–Fort Worth gained more than 11 times as many jobs—31,600. Connecticut is a high-cost state, and finance jobs do not need to be tied to a particular place in the age of electronic transfers and e-commerce.

96. Stockton-Lodi, CA
Population: 702,612
Per-capita GDP growth (decline): (3.7)%
Per-capita personal income growth: 7.9%
Private-sector job growth (decline): (0.1)%
Earnings growth led by: Transportation and warehousing (+14.3%)
Job growth led by: Transportation (+8.6%)
Fortune 500 companies: None

Stockton is sadly famous for its 2013 municipal bankruptcy, and the city’s surroundings seem to feel the pain as well. Stockton is an important deepwater port, a shipping point for the massive agricultural output of California’s Central Valley, and its transport-related sectors are its only bright spots. Otherwise, it has been seeing growth mainly in the health and education fields, with a continuing slump in construction and financial activities.

97. Albuquerque, NM
Population: 901,700
Per-capita GDP growth (decline): (0.8)%
Per-capita personal income growth: 6.2%
Private-sector job growth (decline): (3.5)%
Earnings growth led by: Government and government enterprises (+4.7%)
Job growth led by: Education and health services (+4.9%)
Fortune 500 companies: None

Readers by now will recognize Albuquerque’s recession story: a bad slump driven by falling real-estate prices, followed by an anemic recovery without strong private-sector growth drivers. Leadership has come from government in earnings and from education and health services in jobs. Neither has been growing all that much.

98. Tucson, AZ
Population: 992,394
Per-capita GDP growth (decline): (0.7)%
Per-capita personal income growth: 5.6%
Private-sector job growth: 0.0%
Earnings growth led by: Government and government enterprises (+8.4%)
Job growth led by: Education and health services (+4.3%)
Fortune 500 companies: None

Tucson plays second fiddle in Arizona to the Phoenix MSA, and its weak recovery to some extent echoes that of its larger neighbor. Tucson has had a slower road back, perhaps because it lacks corporate leadership (such as the six Fortune 500 companies in Phoenix) and depends more on public spending. The continued slump in its construction sector, with earnings down 10.8 percent over three years, suggests that it still has more work to do to shake off the real-estate bust.

99. Palm Bay–Melbourne–Titusville, FL
Population: 547,307
Per-capita GDP growth (decline): (3.1)%
Per-capita personal income growth: 7.5%
Private-sector job growth (decline): (0.5)%
Earnings growth led by: Health care and social assistance (+11.6%)
Job growth led by: Leisure and hospitality (+7.5%)
Fortune 500 companies: None

This is Brevard County, the “Space Coast” known for Cape Canaveral, the Kennedy Space Center, and, in recent years, foreclosures. The local economy soared in the mid-2000s building boom, only to plummet after 2007, when the housing market collapsed. In 2012, it made the top of a Forbes list of “The Top 10 New Foreclosure Capitals.” At the time, three years into the official recovery, it had a foreclosure rate of one per 170 homes and a 22-month supply of distressed homes for sale. The construction sector’s record reflects the prolonged slump, slipping 10.7 percent in earnings and 15 percent in jobs from 2009 to 2012. Businesses not tied to building have been steadier, with education, health services, and leisure and hospitality showing modest growth.

100. Las Vegas–Henderson–Paradise, NV
Population: 2,000,759
Per-capita GDP growth (decline): (1.8)%
Per-capita personal income growth: 2.4%
Private-sector job growth: 0.3%
Earnings growth led by: Accommodation and food services (+12.1%)
Job growth led by: Leisure and hospitality (+4.3%)
Fortune 500 companies: Las Vegas Sands, MGM Resorts Int’l, Caesars Entertainment, Wynn Resorts

Las Vegas has also been on a construction roller coaster, with some 70,000 building jobs lost from 2006 to 2012. From 2009 to 2012, when other metros were starting to recover, the gambling capital saw yearly construction earnings fall 41 percent and jobs fall 42 percent. Employment in this sector remains near its recession low. The good news for Las Vegas is that its core industry, leisure and hospitality, was far less volatile. This sector has been gradually rising, but Las Vegas faces continued competition from other gambling centers, including Atlantic City in the U.S., Macau in Asia, and American Indian casinos throughout California and other states.

Part 2: What Separates Leaders from Laggards?

Each MSA has its own story. And there is more than one way for a city or region to thrive. In fact, there may be as many routes to success as there are MSAs. At the same time, success stories tend to have certain things in common. The same is true for the laggards. We have briefly told those stories for MSAs in two groups: the top 20 and the bottom 20, based on performance from 2009 to 2012. Here are some features that tend to set these groups apart.

Leaders have more college graduates.

With some exceptions, top-performing MSAs have a more educated population than the MSAs at the bottom of the list. Census data from 2012 for the 100 largest MSAs showed San Jose with the second-highest percentage of residents with bachelor’s degrees or higher, behind only Washington, D.C. Also high on the list were top-performing MSAs San Francisco (fourth), Boston (fifth), Austin (eighth), and Minneapolis (tenth). As shown in Table 5, the top 20 had a college-graduate average of 34.3 percent, compared with 26.9 percent for the bottom 20 (Table 6).

Metro areas can do well without a relatively well-educated workforce; Bakersfield, last among all the 100 large MSAs, with only 15.3 percent of its population holding college degrees, has thrived lately on the strength of oil drilling and farming. Youngstown and Toledo are also on the low side of college-grad rankings (97th and 88th) but have caught a wave of resurgent manufacturing spurred, in part, by the auto industry and gas drillers. But the options of such metros are also more limited than those with highly educated populations. Businesses in an MSA with high skill levels are more likely to find the employees they need in order to compete globally and offer high-paying jobs.

Leaders are home to more large companies.

If nothing else, hosting large corporations lends prestige to a metro area. The more tangible benefits of a Fortune 500 home office are harder to gauge. A big company in a small local economy can make a huge difference to the area’s future. Larger MSAs don’t stand or fall on the whims of one company, but they do benefit from the high-paying management and support jobs typical of a corporate HQ. And some MSAs seem especially good at attracting (or growing) and retaining large firms. The San Jose MSA, for instance, has 15 Fortune 500 companies, or about eight for each million residents. Minneapolis–St. Paul has 18, or more than five per million. By contrast, Los Angeles has two Fortune 500 companies per million people, Chicago has just under three, and the New York MSA has about three and a half.

Overall, the top-performing 20 large MSAs are home to 154 Fortune 500 corporations. The bottom 20 have just 36. Even corrected for the larger size of the top 20 group, that is still a sizable difference—more than twice the number per resident. As with other indicators, there are exceptions. In the bottom 20, Milwaukee is a significant corporate center, with nine large companies. Baltimore has no Fortune 500 companies at all, but still ranks among the top 20 performers. Yet in a number of other cases, the concentration of big companies does seem to reflect certain strengths. Corporations may favor an MSA because it is rich with the professional support they require, such as banking and legal services. They may also be attracted to an MSA to be at the center of their industry, where specialized talent and suppliers are most abundant. San Jose is one such hub in technology. Houston plays a similar role in energy. The recent announcement from Occidental Petroleum, the last large oil company in Los Angeles, that it will move to Houston is evidence that—in this industry, at least—Houston is the place to be.

Leaders have a higher “PST” quotient.

The percentage of college graduates and the number of corporate headquarters are what we would call “high-value” factors: they are associated with the growth of high-paying jobs and rising incomes from high-skilled services. These occupations—accounting, law, engineering, architecture, and other fields requiring extensive training and expertise—are included in the “professional, scientific, and technical services” sector of the North American Industrial Classification System (NAICS). We call it PST for short, and it has been a major factor in the growth of most top-performing MSAs since the recession. As a group, the top 20 have seen an average growth of 15.8 percent in personal income from this sector, above the 14.7 percent average for all metro areas and well above the 8.5 percent for the bottom 20 performers (Tables 5 and 6). Also worth noting is the different share of PST income in the economies of the top and bottom 20 MSAs. In 2012, the PST sector accounted for 10.6 percent of overall income in the top 20 and just 7.5 percent in the bottom 20.

Laggards have recovered more slowly from the home-building slump.

The residential construction boom of the early to mid-2000s had an uneven impact on the nation. So did the bust that followed. In some regions, the booms were not excessive and were followed by relatively mild downturns, most of which bottomed out in 2010. MSAs in Texas, the Northeast, and the upper Midwest tended to follow this pattern. Florida, Arizona, Nevada, and inland California experienced something more economically damaging: a bubble that collapsed into a prolonged slump. In some cases, the downturn was not clearly over until 2013.

In general, as can be seen in Tables 7 and 8, the top 20 performers have had a much gentler ride on the real-estate roller coaster. The worst peak-to-trough loss of construction jobs—Detroit’s, at -39.8%—is still smaller than the average job loss of -43.1% in the bottom 20. Eight of the bottom 20 MSAs lost more than half of their construction jobs, with Las Vegas shedding nearly two-thirds. And the steeper the decline, the slower the recovery. All of the top 20 MSAs experienced a rise in construction-related income from 2009 to 2012, with the increases averaging 12.9 percent. The yearly count of residential building permits rose in all but two of them, with an average increase of 82.1 percent. In the bottom 20, only three MSAs saw a rise in construction earnings; the group had an overall decrease of 7.2 percent. Building permits rose, but not by as much—just 25.7 percent, on average.

One hopeful sign is that, as of 2012, the share of personal income from construction in both the top and bottom 20 was the same, averaging just over 5 percent. In other words, at least some of the MSAs that depended on debt-fueled home-building for much of their growth in the past decade may have settled into a more sustainable level of construction activity. Whether they have completely shaken off the bust remains to be seen. The impact lingers wherever homeowners are still trying to shed excess debt and where foreclosed properties have yet to clear the market.

Leaders rely less than laggards on government spending.

Betting on government has not been a winning strategy for most MSAs lately. With a few exceptions, income earned in the public sector increased by single digits, if it rose at all, from 2009 to 2012. This was a period of retrenchment in state and local spending and, after the 2009 stimulus package ran its course, in the federal government as well. Just three MSAs in the top 20—San Antonio, Columbus, and Baltimore—and one in the bottom 20 (Colorado Springs) saw income from the public sector gain more than 10 percent (Tables 9 and 10). Ten experienced losses. The winners gained from local increases in military spending (San Antonio and Colorado Springs), higher state spending (Ohio’s capital, Columbus), and federal programs, such as Social Security and Medicare, spared from budget cuts (Baltimore). Otherwise, government spending has been on a slow-growth to no-growth track. As such, it softened the job losses of the recession but now impedes the progress of MSAs that depend heavily on it.

It’s no surprise, then, that the top 20 MSAs tend to get significantly less of their overall personal income from government activities than the 20 laggards do. The share of total earnings from government averaged 14.6 percent for MSA leaders and 21.3 percent for the bottom 20. The average three-year gain in this income was low for both groups: 4.7 percent for the top 20 and 2.8 percent for the bottom 20. What made more difference was the government share of MSA income. The capitals of the two largest states make an instructive contrast here. Austin had a relatively modest gain of 6.4 percent in government income, but it was one of the top-performing MSAs overall. Sacramento had a nearly identical increase (6.3 percent) from the public sector. But it was one of the laggards. The key distinction between the two is that Austin’s public-sector income share was 17 percent, while Sacramento’s was much higher, at 25.5 percent. Put another way, Austin had a bigger stake in the private sector and was rewarded when private-sector growth outstripped that of government.

Do leaders have a better business climate?

What makes one place better than another as a place to do business? This is the multilayered question that managers and owners try to answer when they are deciding where to start, relocate, or expand an enterprise. A little experience tells them that there are no simple answers. Measuring business climate is more art than science, and the more factors that are thrown into the mix, the less scientific and more subjective the process becomes. In our study, we have surveyed the wide variety of ratings—mainly of states, but sometimes of MSAs—put out by think tanks, advocacy groups, accounting firms, and journalists. With some digging, we have tried to find rankings that were published at the start of the period we are examining—2009 to 2012—to see how well the rankings predict economic performance.

We find that rankings of states and MSAs seem to be as much about the recent past as they are about the future. High rankings tend to follow success rather than predict it. For instance, the top 20 performers on our large MSA list had, as a group, a slightly higher rank than the 20 laggards on the 2009 Forbes list of 200 “Best Places for Business and Careers” (Tables 11 and 12). Four years later, most of the top 20 had risen, with their average going from 88.7 to 60.8—after recording considerable economic growth.

Policymakers—who make decisions of crucial importance to companies, especially in the area of taxes and regulation—cannot ignore business climate, hard as it is to measure. But policy choices do not always translate clearly into economic success or failure. Right-to-work laws, for example, may be business-friendly in principle and may advertise a more general pro-business approach by a state; however, they have not had significant influence on relative performance of MSAs in the current recovery.

As for taxes, the prescription for a good business climate would seem simple: the lower the better, as long as revenue is enough to pay for necessary public services. But simply ranking state business tax burdens at a point in time isn’t quite enough to separate the leaders from the laggards. Comparing tax burdens from year to year, as we have done with annual state rankings by the Tax Foundation, is more useful because it suggests where the climate is changing. And here the states with top-performing MSAs stand out. Fifteen of the top 20 metros were in states that became more business-friendly in taxation from the 2010 to 2013 fiscal years (corresponding to the prior calendar years). The 20 laggards, meanwhile, were in states with a more mixed record—on average getting worse, with only four turning friendlier.

The most useful gauge of tax climate may be the Business Tax Competitive Index, developed by Ernst & Young and issued by the Council on State Taxation in 2011. The index takes all state and local taxes on business and calculates a single number: the percentage by which taxes reduce a business’s return on a capital investment over 30 years. The ranking of states (and the District of Columbia) comes out differently from that of the Tax Foundation study. Maine is on top, with the lowest effective tax rate of 3.0 percent. New Mexico is 51st, with an ETR of 16.6 percent. Florida, Texas, New York, and California are all near the middle of the pack. Oregon and Ohio shine, ranked second and third. More to the point of our study, the average state ranking for our 20 top-performing MSAs, at 18.4, was well above the average of 29.8 for the bottom 20.

There is more to business climate than taxes, of course. Taxes are more measurable at the bottom line than other factors, and they certainly enter corporate calculations when expansion and investment decisions are made. Tax incentives, a way of making the tax climate exceptionally friendly to a favored business, are an obvious draw. But businesses also consider resources such as workforce skills and supply, as well as access to capital. Nontax costs (for labor, rents, and utilities) also matter, as does quality of life. And the desirability of one MSA in a state can be quite different from that of another, even under the same regime of taxes and other costs. California, with its mix of top performers and laggards, is a good example of this.

Part 3: 2013 Jobs Data—Who Has Momentum?

At the time we were preparing this study, the BEA had not yet released 2013 data on personal income or GDP for MSAs. But the BLS had released employment data through December 2013, enabling us to add a fourth year of private-sector job data to compare with what we had for the three years from 2009 to 2012. The results, in Tables 13 and 14, show which MSAs among the leaders have kept up their pace of job growth and which seem to have lost steam. Likewise for the laggards—all of which are improving, but some more than others. It’s a mixed picture, especially among the leaders.

Half of the top 20 performers had job increases last year at or above the national average of 2.1 percent. Most of these showed momentum; they were improving on their average pace of the prior three years. The top-performing large MSA, San Jose, had a robust 3.6 percent increase in 2013, well up from its 2009–12 average of 2.3 percent. The private-sector employment in Grand Rapids hit a booming 5.3 percent, well up from an already robust 2.4 percent rate earlier in the recovery. Nashville slipped below its earlier rate but still had a healthy 2.7 percent increase in 2013. Houston, Austin, Dallas–Fort Worth, Portland (OR), Minneapolis–St. Paul, Boston, and Bakersfield also improved on their already strong 2009–12 performance.

But some MSAs showed signs of flagging. San Antonio’s job growth went nearly flat, at 0.4 percent. One factor, cited by local officials, was cuts in defense spending, which affected the metro’s large military sector and private companies serving it. Manufacturing centers in the upper Midwest—Youngstown, Cleveland, Detroit, and Toledo—all fell sharply off their earlier pace. Cleveland even had a drop in jobs of 0.5 percent. Pittsburgh held steady, but at a lackluster rate of 1.5 percent. Indianapolis and Columbus also lost momentum, continuing to add jobs but at a rate below the U.S. average. Grand Rapids, the growth leader of the whole top-20 pack, was the great regional exception.

Is the refurbished Rust Belt slipping back into idle? Time will tell, but 2013 was not a banner year for the industrial heartland. It may be just a pause in the region’s manufacturing renaissance. And it may be a sign that the strongest growth is going on outside the region’s large MSAs, in smaller cities that have found opportunities in advanced manufacturing. It must be said that growth from a very low point can be strong, up to a point, without being sustainable. From 2009 to 2012, the U.S. auto industry was emerging from a state of near-collapse (bankruptcy, in the case of GM and Chrysler) and had nowhere to go but up as long as the economy was improving. Now it is in a more normal, slower-growing market, shared with rival foreign automakers that have made their own comebacks. Detroit, along with other regions tied to the manufacture of cars and trucks, will have to deal with some familiar challenges as it tries to squeeze growth out of a highly competitive market. One reason Grand Rapids seems to be surging while its neighbors falter may be that its manufacturing is diversified and not so dependent on autos.

In the bottom 20, recovery seems to be taking hold in parts of the Sun Belt. Phoenix, with a 3.0 percent increase in jobs, was just a shade below Houston’s 3.1 percent (in the top 20). Unlike in some other metros hit hard by the real-estate slump, its construction sector recovered relatively early—it bottomed out in 2010—and is now growing strongly, with a 5.6 percent job gain in 2013. Sacramento also had a healthy hike of 2.5 percent in jobs, possibly reflecting the tonic effect of Silicon Valley’s surging wealth on California’s fiscal condition. On the whole, however, the laggards of 2009–12 are still trailing the pack. Sacramento and Phoenix are the only two that did better than the U.S. average in 2013.

Part 4: Toward a Growth Policy—Some Lessons Learned

We engaged in this study with a commitment to follow where the data might lead us. What we found, as can be seen in the examples and tables above, is hardly a simple story with an easy-to-draw moral. The MSAs that did the most to lead the economy out of the recession have different strengths. The formula followed by one is not necessarily a good—or even possible—example for the others to follow. In some cases, what looks like a winning formula in the period we’ve studied may not produce sustained growth.

That said, there are lessons to be learned from the 2009–12 data. Here is what policymakers should take away from the diverse stories of metros that charged out of the gate and those that lagged behind after the Great Recession bottomed out:

Know thyself.

Every local economy has strengths and weaknesses. Some, like taxes and regulations, can be changed by policy. But others are inherent in the nature of the place. You either have oil and gas beneath your feet, or you don’t. You may want to trade smokestacks for cutting-edge tech and “clean jobs,” but you don’t have the needed critical mass of talent, research institutions, venture capital, and entrepreneurs. On the other hand, you may be better than any other MSA at making something the nation (and world) needs: think of Grand Rapids and office furniture. Just as there is no single route to success, every community has to evaluate its existing strengths and figure out how best to draw on them for growth over the long term. Targeting an industry like technology only works for MSAs that have strength and support in that area.

Focusing on industry leadership brings high rewards and risks.

MSAs that hold a commanding position in a major sector, such as computer technology (San Jose), energy (Houston), and autos (Detroit), will share the ups and down of their industry. If the long-term economic and political trend in their industry is toward growth, as seems to be the case in technology and U.S. oil and gas production, they will thrive. But tech and energy have had their busts (the dot-com bubble and the 1980s oil slump, for instance) as well as booms. Other industries, like autos, are dependably cyclical. What goes up can be expected to come down every few years. Metros leading these industries need to accept such cycles as a fact of life. Are the risks too high? Not if businesses and governments are wisely managed. Local economies need to cushion themselves from cyclical volatility by fostering a highly skilled, versatile workforce that enables them to diversify. Companies have to stay one step ahead of global rivals, and state and local politicians have to resist the urge to bloat the public sector when business delivers a tax windfall. The now-bankrupt city of Detroit is a cautionary tale, as was California in the 2000s. It’s worth noting that the two largest municipal bankruptcies before Detroit, the California cities of Stockton and San Bernardino, are in MSAs on our bottom 20 list. On the corporate side, the U.S. auto industry has a history of losing its competitive edge when business is good. Time will tell if it has changed.

Health care and education smooth out the bumps.

For most of the 20 top-performing MSAs, professional and business services took the lead in private-sector job growth. This category includes high-paid, high-skilled work from engineering to law, so it helped produce a corresponding rise in personal income as well. But they also gained jobs in another large category—education and health services, a reliable source of employment in good times and bad. For the lagging MSAs, this sector tended to play a larger role in their growth (if they were able to grow at all).

As the chart above indicates, education and health services produced nearly 4 million jobs over the past ten years, all in the private sector (it excludes public school teachers and other government employees). Jobs in professional and business services have increased more sharply since the recession, but their ten-year gain is only about 2.3 million. Manufacturing jobs have made only a modest comeback nationwide and are far below prerecession levels. These trends teach a lesson in the value of diversification. Some sectors rise or fall with forces of supply and demand, global competition, innovation, and (especially in manufacturing) automation. Others are driven by demographic trends that are much more predictable. The demand for health-care will grow with an aging population. Education is population-driven, too, and the number of school and college-age people is not hard to forecast. Beyond their stability, education and health-care can be a growth engine for an MSA that does them exceptionally well. World-class universities and medical centers not only become destinations for people seeking the best care or college; they also produce new technology and businesses, some with enormous growth potential.

Don’t measure manufacturing wealth by jobs alone.

With a few exceptions—Detroit, Toledo, Youngstown, and Grand Rapids—manufacturing jobs have risen modestly, if at all, among top-performing MSAs. But personal income from manufacturing has increased more sharply. From 2009 to 2012, the average income gain in this category among the top 20 was 16.4 percent, while jobs rose an average of just 4.5 percent, and five of the MSAs actually shed jobs. Just one, San Francisco, saw a drop in manufacturing income. San Jose, the top-ranked MSA, saw income rise 29.3 percent from manufacturing, with a job hike of just 1.1 percent

Leaving aside the question of whether the manufacturing recovery is sustainable, it clearly doesn’t deserve the label “jobless.” And judged by the income it has produced, it has raised living standards in long-depressed areas. That, not the mere job count, is the important story. It is also a reminder that today’s manufacturing is not the labor-intensive process of old. Technology is continually raising the productivity of the individual worker, so fewer workers are needed for the same output. By the same token, each worker produces more wealth—and gets at least some of that wealth back in higher pay. And when that money is spent, it nurtures the whole community. Bottom line: modern manufacturing jobs are worth the effort to get them, including the tax and regulatory changes that may be needed to attract new plants.

Avoid the housing trap.

The experience of leader and laggard metros in recent years suggests that it’s time to retire that old economic chestnut, “Housing drives the economy.” Ten years ago, home-building was driving some economies. These now show up in our bottom 20 list of large MSAs, nursing hangovers and waking up late to the recovery. Their recovery has been held back by the loss of construction jobs and home equity, leading to lower consumption overall. As places such as Las Vegas, Phoenix, and parts of Florida show, construction jobs as a share of the nonfarm total employment had surpassed 9 percent at the height of the building boom; in Cape Coral–Fort Myers, they topped 16 percent in 2006. The top 20 metros were never as housing-dependent, and they got through the real-estate bust with less damage (some didn’t have a “bust” at all, but just a cooling of an already lukewarm market). As their real-estate markets bottomed out, both the top 20 and the bottom 20 had, on average, about the same share of their workforce in construction—just over 4 percent. For the top 20 MSAs, which had averaged 5.5 percent in their peak construction years, it wasn’t much of a drop. It was a bigger change for the bottom 20, which had peaked at an average of 7.8 percent. One lesson here is that construction should be limited to meeting demand from people who genuinely have the means to pay. Maybe 5 percent is not the magic number. But clearly, the rule should be that a healthy economy drives housing, not the other way around.

Business can succeed in an unfriendly climate, but friendlier is better.

This study will probably not settle any arguments about which states or MSAs are better than others as a place to do business. The top and bottom performers are, literally, all over the map, though Texas can point to the signal achievement of having its four largest metros not just in the top 20, but in the top ten. Texas is clearly doing something right. But its archrival California—a high-tax state, by most measures, and widely criticized as overregulated—boasts the Number 1 MSA, San Jose, and two other top-20 metros, San Francisco and Bakersfield. Florida, generally low-tax like Texas, makes a poor showing in the MSA rankings.

These results may say more about attitudes (and yes, luck) than any measurable policy matter such as taxation. Texas is lucky, of course, to be rich in oil and gas at a time when transformative technologies—hydraulic fracturing and horizontal drilling—have vastly expanded the ability to extract it. The same good fortune helps explain the growth of jobs and income in Bakersfield, the center of California’s still-significant oil business. But it’s not enough to be blessed with natural resources. Getting rich from those resources requires a willingness to pull them from their natural state. These activities disrupt the environment and create risks that, even if manageable, at least stir up debate. Different states settle those debates in different ways. Texas, North Dakota, and Wyoming tend to come down on the side of extraction. So does Pennsylvania, for now, but New York balks. California’s attitudes break down by region. Along the coast, oil drilling is anathema. Fifty miles inland (where, fortunately, most of the oil is found), it’s a mainstay of the local economy.

The state of a state’s or a metro’s business climate may really come down to the type of businesses they want. Plenty of places will pass on oil refining (or on a new Wal-Mart); none will turn down biotech. The trouble is that biotech thrives in just a few places, typically where research universities and venture capital come together. Most MSAs, including the many smaller ones below the large 100, have to take what is best suited to their location and workforce.

But if those local factors ultimately define the choices that a community can make, political leaders will always have the power to choose how much they add to the costs that a business must pay. Just which taxes matter most, and how high they can go before they drive business away, are questions beyond the reach of our study. We’ve noted one measure of tax burdens, Ernst & Young’s Business Tax Competitiveness Index, which tends to give higher marks to the better-performing MSAs—a sign that it may be on to something. But it might be best to boil down the complexities of tax and regulatory policy to a simple “Do no (unnecessary) harm” rule: to recognize that taxes and regulations on business have local economic costs, and to act accordingly.

A Final Word on This Study

Our analysis of MSA performance has been limited mostly to one set of metro areas (the largest 100) and mostly to a specific span of time—the period from 2009 to 2012, roughly starting with the end of the last recession. These limitations allow us to make only tentative conclusions, particularly about what will happen in coming years. And though the 100 largest MSAs include most of the U.S. population, they leave out plenty of smaller metro areas that may have interesting stories of their own. The faster-growing of these small metros may be playing key roles in the recovery, certainly within their own communities, and some may be rising into the ranks of the top 100 before long.




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