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Leading Locations for 2016: San Francisco-Redwood City-South San Francisco Ranks First Among MSAs

What are the hottest American places for new and expanding businesses? That’s a complicated question to answer, because even if you’re aiming for an objective ruling, there are countless metrics that can point you to locations all over the map. For the sixth year, Area Development has tackled the question with a multifaceted approach that crunches a wide variety of data to arrive at rankings in four vital factors — Prime Workforce, Economic Strength, Year-Over-Year Growth, and Five-Year Growth

Q2 2016
What are the hottest American places for new and expanding businesses? That’s a complicated question to answer, because even if you’re aiming for an objective ruling, there are countless metrics that can point you to locations all over the map.

For the sixth year, Area Development has tackled the question with a multifaceted approach that crunches a wide variety of data to arrive at rankings in four vital factors — Prime Workforce, Economic Strength, Year-Over-Year Growth, and Five-Year Growth. They’re indicators that collectively demonstrate a metropolitan area’s recent and longer-term economic vitality and success, as well as its capacity to effectively support the growth and prosperity of businesses that choose to locate or expand there. The factors that go into Area Development’s Leading Locations studies are, thus, both an examination of the past and a glimpse into the potential future.

This year, 394 metropolitan statistical areas (MSAs) are included in the rankings. It’s worth noting that growth really matters in the calculations for Leading Locations. Careful longtime followers may observe that certain high-ranking locations from last year are nowhere near as high on the list this year. That is not necessarily a sign of economic disaster in those cities that have slipped in the rankings — they may, in fact, still enjoy an enviable economic position, but their growth trajectory has cooled a bit since the last tally.

Leading Locations for 2016 Results

Prime Workforce
The availability of a qualified workforce is, of course, always one of the leading factors on the minds of executives choosing the next place to locate or expand. Generally speaking, it’s preferable to pick a place with a solid pipeline of potential employees who will be ready to hit the ground running. And given the ever-present hope of growth, it makes sense to choose a location where expansion requiring more workers will be a possibility, not a potential problem. Because labor can be a make-or-break variable, prime workforce plays a key role in the Leading Locations equation.

In a nutshell, a high ranking in Prime Workforce indicates that the area has a strong and growing nucleus of well-educated and qualified 18- to 44-year-olds in the workforce. Components include the percentage of workers in this age range who have a bachelor’s degree, and how much that percentage has been growing over the past three years. Also considered is how the area ranks in terms of inward migration of similarly educated workers, as well as whether that rate of migration is growing. Average earnings and how they’re growing also enter into the calculation.

By these measures, no city beats the San Francisco metro area, which also happens to be the #1 Leading Location, when all factors are considered. That’s not entirely surprising, given the area’s reputation as a magnet for young, well-educated, and well-paid professionals. Workers armed with at least a bachelor’s degree make up an outsized share of the population, and more are continually joining the party.

It’s also not too surprising to find such Prime Workforce characteristics in such places as Corvallis, Oregon, and Gainesville, Florida. They are, after all, college towns, home of Oregon State University and the University of Florida, respectively (Corvallis is also home to a Hewlett-Packard research campus). College communities are, in fact, well represented among the top-10 Prime Workforce locations — again, no surprise, because many graduates choose to stick around and join the workforce. Plus, college towns tend to be hotbeds of innovation.

Economic Strength
Economic Strength enters the Leading Locations equation because success tends to breed more success. A strong economy indicates more than just good luck — it’s evidence of leadership that knows how to support the local business community and help development prospects reach their full potential.

Several economic indicators are in the mix for the rating of Economic Strength, led by gross metropolitan product and its rate of change over a year, three years, and five years. Thus, a strong rating here emphasizes growth that has been sustained. But as with the other factors, the growth story is ever-changing, which means that the leaderboards can vary significantly from year to year.

Leading the way nationally was the Elkhart-Goshen area in northern Indiana, one of the most manufacturing-heavy metro areas in the country. Like other manufacturing-intensive areas, its economy is a bit of a bellwether, and though it suffered significantly during the Great Recession, its recreational vehicle industry has led a roaring comeback in more recent years. The other Indiana and Michigan metro areas near the top of the Economic Strength list also tend to have economies with strong manufacturing influence. Times are better for U.S. manufacturing than they’ve been in a good while, so it makes sense that manufacturing-heavy communities are among the strongest economically.

Outside of Indiana and Michigan, the rest of the top-10 metro areas in Economic Strength are all in California, and the economic drivers that put them on the list are diverse. Technology development is always a strong part of the mix, most notably in the Bay Area and Silicon Valley metro areas on this list, but manufacturing and tourism are powerful forces, too. The Anaheim area is a great example of this diversity, enriched by the presence of Disneyland but also the countless corporate headquarters and IT strength in Irvine and Santa Ana.

Five-Year Growth
Five-Year Growth provides evidence of a setting with economic resilience. A win in this column indicates growth that is not a fluke but a sustainable and impressive trend — it could be a community that is rebounding smartly from a downturn, or one that is keeping an especially solid streak alive for an extended period of time. Either way, a good showing on this list indicates strong planning and smart decision-making.

This collection of indicators formerly went by the title of “Recession-Busting.” With the Great Recession fading into the rear-view mirror, it makes sense to reframe these economic attributes as Five-Year Growth because these metro areas have really emerged as communities proven to be moving in a sustainably positive direction. These are indicators that compare 2015 with 2010, including how local employment has grown, how joblessness has declined, how the gross metropolitan product has expanded, how wages have evolved, and how the share of employment involved in manufacturing has changed. What has driven that growth among the top 10 on this list varies substantially. The California community of Napa (#1 in this category), for example, has an economy that is not as diverse as some successful places — but what it does, it does incredibly well. That, of course, would be making wines that the world has recognized as top-notch ever since the 1973 Chateau Montelena chardonnay stunned the French wine establishment in a head-to-head competition. There’s economic growth in making Napa’s wines, as well as in the tourism trade that the wine industry attracts.

The Indiana community of Columbus makes the list through its healthy manufacturing sector as well as the headquarters and research/development activity of diesel engine maker Cummins. Food processing is a major economic driver in Greeley, Colorado, but a lot of its recent growth is in wind — turbine-maker Vestas has had an incredible demand for its green energy product, and that has been good for Greeley. Four Michigan communities have certainly busted recessionary woes during the past five years, with the automotive and technology sectors leading the way. Technology and tourism have sustained the growth of other high-rankers, as well.

Year-Over-Year Growth
Year-Over-Year Growth is a great way to spot those places where the iron is particularly hot right now. Who doesn’t want to bet on a winning team? The calculations for Year-Over-Year Growth are similar to those that go into the Five-Year Growth research — they just measure the most recent year’s activity, rather than the last five. Indicators track the trajectory of local employment and unemployment, as well as gross metropolitan product, the change in manufacturing-related employment, and wage rates.

Not surprisingly, there’s some overlap between the Five-Year Growth list and the list of Year-Over-Year Growth stars. For example, Napa is at the top of this list, too, along with other California locations where the economy is faring well due to technology-sector strength. Ongoing strength in the automotive and recreational vehicle industries is the spark igniting a lot of the year-over-year growth among the top 10, along with other manufacturing sectors, including food. Area Development’s research desk compiled the statistics for this report. Locations were ranked according to the methodology explained herein. This article was written by Steve Stackhouse-Kaelble, Staff Editor.
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