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

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.

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