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The Return of Technology Clusters to the List of “Best-Performing Cities”

Milken Study Highlights Metros Recovering Most Quickly from the Economic Recession and Growing Their Economies.

February 2013
Milken Institute’s “Best Performing Cities 2012: Where America’s Jobs Are Created and Sustained” is a data-driven, comprehensive measure of economic strength across 200 large and 179 smaller U.S. metropolitan areas that illuminates the job, wage, and technology trends that shape prospects for a city’s or community’s success. The report attempts to explain why some places in America are prospering and some are struggling. It provides insight into what separates the cities that are well positioned for the future from those that are still mired in the setbacks inflicted by the financial crisis and the Great Recession.

According to the report, in 2012, high technology was behind the success of many locations. Communities that embraced technological know-how grew their economies. Designing and producing communications and computing devices, and serving companies and consumers online, were good businesses to be in. Having the proper infrastructure to meet business’ energy needs also lent stability to a location’s economy and provided for growth. Overall, the regions that weathered the economic downturn best and are recovering fastest adopted a range of ideas and strategies for seizing opportunity and keeping risk at bay.

Following are some of the 2012 report’s key findings:

  • San Jose-Sunnyvale-Santa Clara, Calif., vaulted 50 spots from last year to lead Milken’s “Best-Performing Large Cities” index, a position it last held in the 2001 rankings.

  • Texas metros didn’t dominate the rankings quite as much as last year but still took three of the top 10 positions and seven of the top 25.

  • Tech centers performed well, holding 12 of the top 25 positions. In addition to San Jose, Austin-Round Rock-San Marcos, Texas; Raleigh-Cary, N.C.; Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.Va.; Salt Lake City, Utah; and Cambridge-Newton-Framingham, Mass., were in the top 10.

  • Logan, Utah-Idaho remained the “Best-Performing Small City for 2012” with the help of a thriving technology sector.

  • Holland-Grand Haven, Mich., enjoyed the biggest surge among large cities, rising 108 spots to No. 40 for 2012.

The return of technology clusters to the list of “Best-Performing Cities” is the top story for 2012. The resurgence of business investment in equipment, especially information technology and software, has driven the recovery. In the early stages of the current recovery, growth was spurred by businesses making IT purchases that had been deferred. With the high depreciation rate for computers and communications equipment — more than 40 percent annually compared with about 6 percent for more traditional types of equipment — businesses are lagging in covering replacement demand, as well as adding to their capital stocks. Without these investments, firms risk allowing their competitive positions to erode, leading to lost market share and, potentially, sales.

IT now accounts for 60 percent of total equipment and software investment. Purchases of servers, routers, other communications equipment, and the software that controls their operation, surged over the past two years. Add in some social media, iPads, the apps that run them, and clean technology, and it’s apparent why tech centers advanced in 2012.

"People expect tech to be one of the most dynamic sectors of the economy, and it was," says Ross DeVol, chief research officer of the Milken Institute and one of the report's authors. "A perhaps less expected highlight of this year's rankings is how the national resurgence in manufacturing is reflected in the greatly improved fortune of local economies, especially in the upper Midwest." For example, in addition to Holland-Grand Haven, Mich., which rose 108 places to No. 40, other Midwest hot spots include Minneapolis-St. Paul; Gary, Ind.; Warren, Mich.; and Indianapolis. Each city moved up at least 70 spots in this year's index.

Best-Performing Cities 2012: Top 10 Large Metros

  • 1. San Jose-Sunnyvale-Santa Clara, CA (51)*

  • 2. Austin-Round Rock-San Marcos, TX (4)

  • 3. Raleigh-Cary, NC (14)

  • 4. Houston-Sugar Land-Baytown, TX (16)

  • 5. Washington-Arlington-Alexandria, DC-VA-MD-WV (17)

  • 6. Salt Lake City, UT (6)

  • 7. Provo-Orem, UT (9)

  • 8. Cambridge-Newton-Framingham, MA (12)

  • 9. Charleston-North Charleston-Summerville, SC (11)

  • 10. Fort Worth-Arlington, TX (24)

* 2011 rank

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