Dr. Michael Shires Coauthors Annual Series, "Best Cities to Do Business" | Forbes | Pepperdine University | School of Public Policy

Dr. Michael Shires Coauthors Annual Series, "Best Cities to Do Business" | Forbes

June 12, 2015  | 12 min read

The Best Cities For Jobs 2015

by Joel Kotkin and Michael Shires 06/04/2015 | Forbes

Since the U.S. economy imploded in 2008, there’s been a steady shift in leadership in job growth among our major metropolitan areas. In the earliest years, the cities that did the best were those on the East Coast that hosted the two prime beneficiaries of Washington’s resuscitation efforts, the financial industry and the federal bureaucracy. Then the baton was passed to metro areas riding the boom in the energy sector, which, if not totally dead in its tracks, is clearly weaker.

Right now, job creation momentum is the strongest in tech-oriented metropolises and Sun Belt cities with lower costs, particularly the still robust economies of Texas.

Topping our annual ranking of the best big cities for jobs are the main metro areas of Silicon Valley: the San Francisco-Redwood City-South San Francisco Metropolitan Division, followed by San Jose-Sunnyvale-Santa Clara, swapping their positions from last year.

Our rankings are based on short-, medium- and long-term job creation, going back to 2003, and factor in momentum — whether growth is slowing or accelerating. We have compiled separate rankings for America’s 70 largest metropolitan statistical areas (those with nonfarm employment over 450,000), which are our focus this week, as well as medium-size metro areas (between 150,000 and 450,000 nonfarm jobs) and small ones (less than 150,000 nonfarm jobs) in order to make the comparisons more relevant to each category. (For a detailed description of our methodology, click here.)

An Economy Fit For Geeks

Venture capital and private-equity firms keep pouring money into U.S. technology companies, lured by the promise of huge IPO returns. Last year was the best for new stock offerings since the peak of the dot-com bubble, with 71 biotech IPOs and 55 tech IPOs. It’s continuing to fuel strong job creation in Silicon Valley. Employment expanded 4.8% in the San Francisco Metropolitan Division in 2014, which includes the job-rich suburban expanses of San Mateo to the south, and employment is up 21.2% since 2009. This has been paced by growth in professional business services jobs in the area, up 9% last year, and in information jobs, which includes many social media functions – information employment expanded 8.3% last year and is up 28.7% since 2011.

San Jose which, like San Francisco, was devastated in the tech crash a decade ago, has also rebounded smartly. The San Jose MSA clocked 4.9% job growth last year and 20.0% since 2009. Employment in manufacturing, once the heart of the local economy, has grown 8% since 2011, after a decade of sharp reversals, but the number of information jobs there has exploded, up 16% last year and 35.7% since 2011.

Meanwhile, there’s been a striking reversal of fortune in the greater Washington, D.C., area, while the greater New York area has also fallen off the pace. In the years after the crash, soaring federal spending pushed Washington-Arlington-Alexandria to as high as fifth on our annual list of the best cities for jobs; this year it’s a meager 47th, with job growth of 1.5% in 2014, following meager 0.2% growth in 2013, while Northern Virginia (50th) and Silver Spring-Frederick-Rockville (64th) also lost ground, dropping, respectively, five and 15 places.

Job growth has also slowed in the greater New York region, which also was an early star performer in the immediate aftermath of the recession, in part due to the bank bailout that consolidated financial institutions in their strongest home region. Virtually all the areas that make up greater New York have lost ground in our ranking: the New York City MSA has fallen to 17th place from seventh last year, as employment growth tailed off to 2.6% in 2014 from 3.2% in 2013. Meanwhile Nassau-Suffolk ranks 49th, Rockland-Westchester 60th and Newark is second from the bottom among the biggest metro areas in 69th place.

The Shift To ‘Opportunity Cities’ Continues

Not every tech hot spot has the Bay Area’s advantages, which include venture capital, the presence of the world’s top technology companies and a host of people with the know-how to start and grow companies.

But other metro areas have something Silicon Valley lacks: affordable housing. Most of the rest of our top 15 metro areas have far lower home prices than the Bay Area, or for that matter Boston, Los Angeles or New York. And they also have experienced strong job growth, often across a wider array of industries, which provides opportunities for a broader portion of the population.

The combination of lower prices and strong job opportunities are what earns them our label of “opportunity cities.” The Bay Area may attract many of the best and brightest, but it is too expensive for most. Despite the current boom, the area’s population growth has been quite modest — San Jose has had an average population growth rate of 1.5% over the past four years. In contrast, seven of our top 10 metro areas, including third place Dallas-Plano-Irving, Texas, and No. 4 Austin, Texas, are also in the top 10 in terms of population growth since 2000. If prices and costs are reasonable, people will go to places where work is most abundant.

In the Dallas metro area, the job count grew 4.2% last year, paced by an 18.6% expansion in professional business services, while overall employment is up 15.7% since 2009. Job growth last year in Austin, Texas, was a healthy 3.9%, while the information sector expanded by 4.7% and since 2011 by 17.8%.

Many Texas cities, of course, have benefited from the energy boom — the recent downturn in oil prices make it likely that growth, particularly in No. 6 Houston, will decelerate in coming years.

But what is most remarkable about the top-performing cities is the diversity of their economies. Most have tech clusters, but several, such as Houston, Nashville, Tenn., Dallas and Charlotte, N.C., have growing manufacturing, trade, transportation and business services sectors. The immediate prognosis, however, may be brightest in places like Denver and Orlando, where growth is less tied to energy than business services, trade and tourism. Nashville, which places fifth on our list, has particularly bright prospects, due not only to its growing tech and manufacturing economy, but also its strong health care sector which, according to one recent study, contributes an overall economic benefit of nearly $30 billion annually and more than 210,000 jobs to the local economy.

The Also-Rans

Some economies lower in our rankings have made strong improvements, notably Atlanta-Sandy Spring-Roswell, which rose to 12th this year, a jump of 12 places. Long a star performer, the Georgia metro area stumbled through the housing bust, but it appears to have regained its footing, with strong job growth across a host of fields from manufacturing and information to health, and particularly business services, a category in which employment has increased 24% since 2009.

In California, one big turnaround story has been the Riverside-San Bernardino area, which gained six places to rank 11th this year as it has again begun to benefit from migration caused by coastal Southern California’s impossibly high home prices.

Several mid-American metro areas also are showing strong improvement. Louisville-Jefferson County, Ky., jumped fifteen places to 21st, propelled by strong growth in manufacturing, business services and finance. Kansas City, Kan. (23rd), and Kansas City, Mo. (46th), both made double-digit jumps in our rankings. In Michigan, Detroit-Dearborn-Livonia, bolstered by the recovery of the auto industry, gained six places to 59th, while manufacturing hub Warren-Troy-Farmington Hills picked up two to 39th. These may not be high growth areas, but these metro area no longer consistently sit at the bottom of the list.

Losing Ground

One of the biggest resurgent stars in past rankings, New Orleans-Metairie, dropped 17 places to 43rd, while Oklahoma City fell 17 places to 33rd. These cities lack the economic diversity to withstand a long-term loss of energy jobs if the sector goes into a prolonged downturn.

Yet perhaps the most troubling among the also-rans are the metro areas that have remained steadily at the bottom. These are largely Rust Belt cities such as last place Camden, N.J., which has been at or near that position for years.

Future Prospects

Now the best prospects appear to be in tech-heavy regions, but it’s important to recognize that a key contributor to the tech sector’s frenzy of venture capital and IPOs had been the Federal Reserve’s unprecedented monetary interventions, which are now phasing out. As it is, headwinds to expansion in the Bay Area are strong. High housing prices, according to recent study, may make it very difficult for these companies to expand their local workforces. The median price of houses in tech suburbs like Los Gatos now stand at nearly $2 million — rich for all but a few — while downtown Palo Alto office rents have risen an impossible 43% in the last five years.

Companies like Google, which has run into opposition over its proposed new headquarters expansion, may choose to shift more employment to other tech centers, such as Austin, Denver, Seattle, Raleigh and Salt Lake City, where the cost of doing business tends to be less. Similarly the stronger dollar could erode the modest progress made by some industrial cities, such as Detroit and Warren, as it gives a strong advantage to foreign competitors.

Normally we would expect these processes to play out slowly. But in these turbulent times, it’s best to keep an eye out for disruptive changes — a new economic cataclysm, should one occur, could quickly shift the playing field once again.

 

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050.  He lives in Los Angeles, CA.

Michael Shires, Ph.D. is a professor at Pepperdine University School of Public Policy.

 

Smaller Stars: The Best Small And Medium-Size Cities For Jobs 2015

by Joel Kotkin and Michael Shires 06/12/2015 | Forbes

A look at job growth in America’s small and medium-size cities provides a very different, perhaps more intimate portrait of the ground-level economy across a wider swathe of the country than our survey last week of The Best Big Cities For Jobs. It takes us to many states that lack large cities, particularly in the Midwest and South. In contrast to our big city list, information technology is a driving factor in only a handful of smaller metro areas – grittier sectors like energy and manufacturing are the livelihood of a good many, as well as tourism for a surprisingly large number of thriving places that have become vacation meccas for the increasing number of affluent residents of major urban areas.

The 421 metropolitan statistical areas we evaluated in our rankings, ranging from large to small, account for 87.6% of all U.S. nonfarm employment.  Of them, the country’s small MSAs (those with less than 150,000 nonfarm jobs) and medium-sized ones (between 150,000 and 450,000 nonfarm jobs) account for just over a third of U.S. urban employment.  Job creation in these communities since 2000 has been roughly comparable to the nation’s larger metro areas — total nonfarm employment has increased 7.5% in small and medium-size MSAs compared to 7.8% for large ones.

Our rankings are based on employment growth over the short-, medium- and long-term, going back to 2003, and factor in momentum — whether growth is slowing or accelerating. (For a detailed description of our methodology, click here.)

The Slipstream Economies

A good number of our top-ranked smaller cities are posting strong job growth in the slipstream of larger economies. This is clearly the case with our top-ranked medium-size metro area, Provo-Orem, and its northern Utah neighbor, No. 7 Ogden-Clearfield. Both are located along the Wasatch Front not far from the somewhat bright lights of Salt Lake City (and more importantly its airport) and are heavily Mormon. Provo is home to Brigham Young University, the academic center of the Mormon universe with over 29,000 students. That group’s social cohesion, which translates into a high percentage of families with children, as well as emphasis on education and enterprise, underlay the success of these areas.

But what is most striking about these two metro areas is the diversity of their economic growth. Since 2009, for example, employment in the Provo-Orem area is up 23.5%, with gains in virtually every sector, paced by increases in construction and natural resources (60%), information (30.1%), business services (46.5%) and even manufacturing (16.4%). With the exception of information jobs, Ogden has showed a similar, albeit less spectacular pattern of widespread economic growth over the same time period.

Other slipstream economies that are thriving include our second-ranked small city. Greeley, Colo., slightly over an hour’s drive from the Denver airport. Greeley rose seven places from last year, powered largely by 114% employment growth since 2009 in construction and natural resources (oil and gas mostly) as well as solid expansions in business services (up 29.8%) and manufacturing (up 17.2%). As in the case of Provo and Ogden, Greeley benefits from being close to a dynamic large metro area, but can couple that with prized small town attributes like less traffic, good schools, relatively low housing prices and safe streets.

Energy Hot Spots: Not All Cold Yet

Until the recent tumble in energy prices, big oil towns reliably dominated our list. For all sorts of reasons, including fierce local opposition, big metro areas don’t tend to produce oil and natural gas, though the technical and business aspects are dominated by a few, notably Houston. The price plunge had not yet translated into heavy job losses in many energy towns by January 2015, which is as far as our data goes, although some clearly were already hurting.

Take our top-ranked small city, Midland, and nearby No. 3-ranked Odessa, which are in the oil-rich Permian Basin of West Texas. Employment grew 9.1% in Midland last year, the fastest pace of any metro area in the country. Since 2009 the west Texas town has logged almost insane 45.8% expansion in its job base, with a large boost not only in natural resources and construction (108.4% growth), but also manufacturing (up 72.2%), wholesale trade (80.6%) , professional business services (up 40%) as well as leisure and hospitality (likely rooms for the roughnecks). Odessa boasts similar, albeit somewhat less gaudy numbers.

But you don’t have to be in Texas to be an energy boomtown. Bakersfield, Calif., No. 6 on the medium-size list, has managed to retain a strong energy economy in a state that has all but declared war on fossil fuels. Bakersfield has been described as “little Texas,” and it has enjoyed strong, very un-Californian employment growth in such areas as manufacturing, up 17.8% since 2009, trade (19.8%) and natural resources and construction (40.8%). Blue collar employment may be suffering in much of California, but not down in this metro area, best known for country stars like Merle Haggard and highly resistant to the San Francisco-style economic post-industrial model that dominates the state.

Yet there’s no question that there are problems in the oil patch. Some of the biggest decliners on our list from last year are big energy towns, such as Lafayette, La., which slid 43 places to 48th on the mid-size cities list, and Anchorage, Alaska, down 25 places to 63rd. On our small city list, Bismarck, N.D., a major hub for that state’s shale boom, dropped from second last year to 19th this year, and Houma-Thibodaux, La., tumbled 61 places to 81st.

Playground Towns

Looking across the country, however, many of the small cities doing the best are not those that produce anything tangible like energy or cars. There’s been a strong resurgence in what may be considered playgrounds for the expanding ranks of the affluent residents of major urban areas, particularly on the West Coast, where Silicon Valley is minting many millionaires along with its famous billionaires, as well as along the East Coast, where second home and retirement-oriented communities are booming. Last year, vacation home sales broke the national record.

Among the playground areas that are prospering on our small cities are No. 4 Naples-Immokalee-Marco Island, Fla., where employment expanded 5.4% last year to 136,200 jobs, Napa, Calif. (eighth, with 15.6% job growth since 2009), and Redmond-Bend, Ore. (12th). On our mid-size list, Santa Rosa, Calif., (Sonoma County) ranks 12th and Santa Barbara- Santa Maria, Calif., 17th.

In some of these places, not surprisingly, leisure and hospitality are the largest industry — 19.6% of the workforce in Naples is employed in this sector. Economist Bill Watkins, who has studied these trends in California and Oregon, suggests that the growth of the playground cities reflects the emergence of America’s haute bourgeoisie. “The well-to-do go to these places,” he notes, fueling both their growth and, in hard times, their sometimes sharp declines. “They have second homes and can spend a lot of money.” Watkins’ analysis of Bend, Ore.’s economy, for example, shows that upwards of 80% of the volatility in its economy can be traced to what is occurring in California, notably the Bay Area.

Industrial Cities:Some Up, Some Down

For generations manufacturing in the U.S. has been moving to smaller cities, largely in the South, while Midwestern and northeastern industrial cities have been taking it on the chin. With a modest growth in manufacturing, some small and mid-size cities have done surprisingly well, although many continue to lag, and even fall further in the rankings.

Columbus, Ind., a manufacturing hub that is home to diesel engine maker Cummins, epitomizes the up and down nature of industrial economies. Right now Columbus, riding a new wave of investment from Cummins and other manufacturers, has risen to fifth on our small city list, and is at record high employment. Since 2009 the Indiana metro area’s job count has expanded 23.4% to 51,800, paced by an impressive 43.2% jump in manufacturing.

Sadly, this is not the case for many manufacturing towns. As with the large city list, many of the bottom dwellers are old industrial centers. On the mid-size list, take  91st place Youngstown-Warren-Boardman, Ohio-Pa., where employment is down 6.6% from 2003, or No. 85 Toledo, Ohio, off 5.4% from 2003. Among small cities furniture manufacturing center Rocky Mount, N.C., fell to 255th, down 4.4% since 2009, while old steel center Weirton-Steubenville, W.V.-Ohio, dropped to 254th place, with employment down 12.7% since 2003.

College Towns And The Future For Small Cities

The future of small city America depends heavily on how these areas adjust to changing economic times. Given that manufacturing and agriculture are becoming less labor intensive, to stay competitive, smaller cities will need to move more aggressively into knowledge-based fields like software, medical services and higher-end business services. Mid-sized college towns like No. 1 Provo, Boulder, Colo. (14th), Lexington, Ky. (19th), and Madison, Wisc. (20th), have experienced steady growth.

Diversification of the economy may be the best guide to future smaller city growth. Madison, for example, has a strong government and education employment base but also is home to growing number of technology firms, with information employment up an impressive 36.1% since 2009. Medical software maker Epic employs 6,800 at its sprawling campus in nearby Verona.

But perhaps the best example of successful small city growth may be Fargo, N.D., a long time butt of sophisto jokes, which ranks sixth on our small metro area list. Fargo, which is also home to North Dakota State University, may not have the cool factor of San Francisco or even Madison, but its economy is extraordinarily balanced, and not nearly as energy-dependent as other North Dakotan cities like Bismarck or Williston. It has posted double-digit employment growth since 2009 in everything from construction and manufacturing to business services and hospitality.

As many of America’s most prosperous metro areas become ever more expensive and highly regulated, notably in California and the Northeast, small-city America could enjoy a renaissance in coming years. But it will take determination on the part of local leaders and residents to begin expanding their economic strategy beyond any one niche, and instead develop a growth economy that can insulate themselves from the downturns that affect any single industry over time.

 

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050.  He lives in Los Angeles, CA.

Michael Shires, Ph.D. is a professor at Pepperdine University School of Public Policy.