Winners and losers in this year's ranking of state economic climates

The number is (617) 227-4700. We know from experience that as soon as this issue hits newsstands, that number -- ours -- will get a lot of use.

Folks from Arizona, which had ranked #1 since 1986, will call to find out why their state fell to #11 this year. And then some wise guy will wonder if North Carolina's decision to host this year's Inc. 500 conference is the reason it moved up three positions to #8. (It's not. In fact, this is the first time ever that a host state has gained in the subsequent rankings.)

In case your call doesn't get through, let us answer as best we can what we expect will be the most popular questions. They range, as you'll see, from the easy to the unanswerable:

Q: Why did Texas (whose residents are always quick to question bad news) fall from #20 to #31, the biggest decline on the list?

A: The oil economy hasn't come back yet.

Q: What caused New Mexico -- which fell another three places this year to #39 -- to lose ground four years in a row?

A: A semi-educated guess here, but the state is losing defense contracts as part of the federal belt-tightening.

Q: Massachusetts dropped from #12 to #17, yet New Hampshire, its neighbor, remained at #2. What gives?

A: We don't know.

We do know a couple of things, though. First, never underestimate quality-of-life issues in trying to predict new-job generation. Hawaii, which ranked 40th in 1986, has been steadily climbing; it reached #12 this year. Similarly, California and Florida -- two other lifestyle favorites -- remain comfortably in the top 10 for the fourth consecutive year.

Also, it is interesting to spend some time with the column labeled "Business Birthrates." In the 1988 report, every state reported a smaller number of start-ups than the year before. That's true this year, too, with four exceptions: Hawaii, Nevada, Oregon, and South Carolina reported increases. Not surprisingly, since business birthrates are a significant component in determining a state's ranking (see "What the Rankings Mean," below), all four states showed significant gains. In fact, Oregon and Nevada jumped the most, moving up nine positions and seven positions, respectively.

Finally, in looking over the past four years' worth of data, we noticed that states consistently gaining in the rankings outnumbered consistent losers two to one. Only five states -- Alaska, Arkansas, Colorado, New Mexico, and Texas -- have steadily fallen in the rankings every year since 1986. Eleven states -- Hawaii, Illinois, Iowa, Mississippi, Nevada, North Carolina, Oregon, Tennessee, Washington, West Virginia, and Wisconsin -- have steadily moved up. We didn't include your state in the list of gainers if it was stuck in the same spot two years in a row. So if you're from the economic-development offices in Delaware, Kentucky, North Dakota, Pennsylvania, or Virginia, please don't call us.

Besides, you'd be likely to get a busy signal anyway.

The rankings start on page 2. -- Paul B. Brown


WHAT THE RANKINGS MEAN

This year's rankings measure how a state is doing in stimulating entrepreneurial activity and economic expansion. A state's position on the list reflects its economy's relative success over a four-year period in three areas: job generation, new-business creation, and young-company growth.

Job Generation. The figures in columns 1 and 2, from the federal government's Bureau of Labor Statistics, indicate a state's gain or loss in private-sector and civilian public-sector employment between February 1985 and February 1989.

New Businesses. The figures in column 4, compiled for the Report on the States by Cognetics Inc., in Cambridge, Mass., include all companies founded in 1985 or later that had at least 10 employees by January 1989. The business birthrate in column 5 is this number divided by the total number of business establishments in the state.

Young-Company Growth. Column 7, also compiled by Cognetics, lists all the companies founded in 1981 or later that registered a growth index of at least 20 between January 1985 and January 1989. What's a growth index? Simply the company's absolute growth in employment multiplied by its percentage growth in employment (expressed as a decimal). Say you employed 50 people in January 1985 and 75 people in January 1989. Your growth index would be 25 * .50, or 12.5 -- not enough to make the list. Figuring growth in this way eliminates any bias in favor of large companies (which might have high absolute numbers) or small ones (which might have high percentage numbers).

Column 8 is the number of these young, fast-growing companies divided by all the state's business establishments founded in 1981 or later.

Scores. A state's scores (columns 3, 6, and 9) are computer-generated rankings that reflect how it stands in relation to all the other states. The top state in any one category gets a score of 33.33, the bottom state a score of one. Every other state is assigned a number reflecting its relative position on an imaginary scale between the top and the bottom.

All scoring is based on a state's ranking in the percentage columns, not in the absolute-numbers columns. Column 10 -- the bottom line, so to speak -- is the sum of the other three score columns. The top possible score is 100.


RATING THE STATES 1989

New Jobs, New Companies, And The Climate For Growth

Rank/State (1988 rank) No. New Jobs (in thou.) Growth in Jobs Score No. New Companies Business Birthrate Score No. Fast-Growth Companies % Fast-Growth Companies Score Total Score
1 2 3 4 5 6 7 8 9 10
1. Nevada (8) 122.5 28.49% 33.33 533 2.87% 33.33 101 3.07% 20.36 87.02
2. New Hampshire (2) 81.9 18.38 24.96 464 2.19 22.86 133 4.53 33.33 81.15
3. Virginia (5) 454.7 19.25 25.68 2,301 2.52 27.94 612 3.73 26.22 79.84
4. Maryland (3) 269.4 14.84 22.02 1,993 2.48 27.33 479 3.75 26.40 75.75
5. Georgia (6) 439.8 17.66 24.36 2,759 2.54 28.25 654 3.23 21.78 74.39
6. Florida (4) 889.3 20.37 26.60 6,148 2.60 29.17 1,492 2.78 17.79 73.56
7. Delaware (7) 53.2 18.95 25.43 227 1.85 17.63 65 4.08 29.33 72.39
8. North Carolina (11) 402.2 15.50 22.57 2,113 2.14 22.09 522 3.38 23.12 67.78
9. Tennessee (10) 253.0 14.06 21.37 1,816 2.33 25.02 442 3.09 20.54 66.93
10. California (9) 1,505.2 14.01 21.33 11,911 2.19 22.86 3,086 3.31 22.49 66.69
11. Arizona (1) 179.8 14.41 21.66 1,537 2.13 21.94 387 3.23 21.78 65.38
12. Hawaii (17) 66.5 15.79 22.81 445 2.23 23.48 93 2.84 18.32 64.61
13. South Carolina (16) 206.4 16.36 23.28 1,203 2.36 25.48 221 2.53 15.57 64.33
14. Vermont (13) 41.8 19.08 25.53 192 1.63 14.24 47 3.05 20.18 59.96
15. New Jersey (14) 298.1 8.99 17.18 3,140 1.91 18.55 789 3.25 21.96 57.69
16. Maine (15) 76.6 17.45 24.19 327 1.43 11.16 89 3.24 21.87 57.22
17. Massachusetts (12) 248.1 8.68 16.92 1,988 1.63 14.24 551 3.45 23.74 54.90
18. Connecticut (18) 142.0 9.28 17.42 1,157 1.60 13.78 341 3.34 22.76 53.96
19. Washington (21) 308.4 18.70 25.22 1,494 1.58 13.47 400 2.38 14.23 52.92
20. Alabama (19) 158.5 11.35 19.14 1,143 1.90 18.40 233 2.43 14.68 52.21
21. Indiana (24) 306.2 14.57 21.80 1,504 1.60 13.78 358 2.64 16.54 52.12
22. Utah (22) 57.0 9.36 17.49 587 1.92 18.70 133 2.45 14.86 51.05
23. Oregon (32) 161.8 16.20 23.15 945 1.54 12.85 255 2.45 14.86 50.86
24. Pennsylvania (28) 405.3 8.79 17.01 3,372 1.52 12.55 852 3.13 20.90 50.46
25. Kentucky (30) 165.2 13.68 21.06 1,106 1.66 14.70 236 2.39 14.32 50.08
26. Ohio (25) 433.4 10.22 18.20 3,095 1.61 13.93 810 2.71 17.17 49.30
27. Michigan (23) 364.8 10.58 18.50 2,467 1.47 11.78 730 2.84 18.32 48.59
28. New York (27) 559.1 7.37 15.84 6,209 1.63 14.24 1,651 2.82 18.14 48.22
29. Wisconsin (33) 232.7 12.16 19.80 1,324 1.41 10.85 317 2.40 14.41 45.06
30. Minnesota (29) 206.1 11.36 19.14 1,359 1.40 10.70 354 2.48 15.12 44.97
31. Texas (20) 119.3 1.81 11.23 7,027 2.15 22.25 1,443 2.06 11.39 44.87
32. Rhode Island (26) 33.6 8.07 16.42 292 1.36 10.08 78 2.84 18.32 44.82
33. Illinois (34) 398.2 8.49 16.77 3,555 1.47 11.78 867 2.42 14.59 43.13
34. Mississippi (38) 80.9 9.88 17.92 660 1.66 14.70 111 1.78 8.90 41.52
35. Missouri (35) 199.9 9.88 17.91 1,490 1.42 11.01 344 2.13 12.01 40.93
36. Kansas (37) 86.2 9.05 17.23 846 1.41 10.85 177 2.04 11.21 39.30
37. Colorado (31) 22.4 1.60 11.06 1,403 1.87 17.93 297 1.92 10.15 39.14
38. West Virginia (40) 24.5 4.26 13.26 451 1.64 14.39 69 1.95 10.41 38.07
39. New Mexico (36) 36.2 7.13 15.64 402 1.52 12.55 85 1.75 8.64 36.82
40. Arkansas (39) 90.3 11.68 19.40 626 1.39 10.55 108 1.50 6.42 36.37
41. Iowa (44) 116.9 11.15 18.97 612 0.99 4.39 158 1.98 10.68 34.03
42. Nebraska (41) 60.3 9.46 17.57 410 1.08 5.77 107 1.87 9.70 33.04
43. Idaho (43) 21.2 6.51 15.12 243 1.16 7.00 47 1.37 5.26 27.39
44. Louisiana (42) ñ82.0 ñ5.18 5.44 1,240 1.53 12.70 283 1.77 8.82 26.95
45. South Dakota (47) 17.1 7.09 15.60 156 0.90 3.00 31 1.27 4.38 22.98
46. Oklahoma (45) ñ40.9 ñ3.50 6.83 1,000 1.33 9.62 209 1.43 5.80 22.25
47. North Dakota (49) 8.2 3.35 12.50 147 0.95 3.77 23 1.03 2.24 18.52
48. Montana (48) 3.9 1.45 10.93 205 0.90 3.00 46 1.15 3.31 17.24
49. Alaska (46) ñ11.3 ñ5.26 5.38 150 1.14 6.70 31 1.07 2.60 14.67
50. Wyoming (50) ñ20.5 ñ10.54 1.00 101 0.77 1.00 22 0.89 1.00 3.00

Chart compiled by special projects editor Sara Baer-Sinnott.