Birch's argument also explains why "edge cities" such as Riverside, in the so-called Inland Empire just east of Los Angeles, have been thriving. "People came in because of the lower costs here," says André Richards of the Riverside County Economic Development Agency. "As the population boomed businesses began noticing this newly forming market and began moving in themselves." A similar phenomenon is visible in the otherwise sluggish Northeast. Though New York City itself isn't growing much, the city's northern New Jersey suburbs are bursting at the seams. And the healthiest outlying cities are those such as Lancaster, Pa., where a low-cost, high-quality style of life attracts and holds a steady stream of new residents. Moral: the place to start or expand a business these days is where the people are.
Marketers, take note: in general, population growth translates into growth in a metro area's total earnings, which is a pretty good proxy for what a region's residents have to spend. Rank U.S. cities by earnings growth, and leading the list will be many of the same Florida and California cities that top the population rankings. In city-to-city comparisons, places with growing populations outpace their neighbors economically. Metro Cleveland lost residents between 1988 and 1990, and its earnings grew only a little. The Twin Cities in Minnesota gained people -- and the area's earnings grew five times as much as Cleveland's.
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Muscular Economies
Though an expanding population fuels local markets, population growth alone is no protection against collapse -- ask the thousands who flocked to Houston in the early 1980s, just in time to watch the region's oil-based economy crumble. So how do you separate flash-in-the-pan booms from solidly based growth? Experts point to three characteristics of a truly muscular metro economy:
It's more than just an overheated real estate sector. In some of the nation's fastest-growing regions, growth itself is the major industry; the hottest companies are in real estate development, construction, and finance. But "construction is a weird sector," points out WEFA's Duobinis. "To have growth, you can't just be adding new buildings; you have to add more new buildings than before." When the pace of expansion slows, construction workers are suddenly out of work, property values plummet, and credit dries up.
That is a clear and present danger for places like the Vallejo/Fairfield region just north of San Francisco, where construction employment grew by 14% between 1988 and 1990. But real estate overheating has plagued cities from New Hampshire to New Mexico. In Minneapolis, says Norwest Corp. economist Larry Wipf, an otherwise healthy economy is haunted by the specter of four big office towers now under construction. "We'll end up with a glut of space we'll have to work through," says Wipf with a sigh. "Construction employment will dip, and that will retard the recovery as we come out of the recession."
It trades -- in part -- on a specialty. Big cities, like big companies, used to think of themselves as conglomerates, each metro business world a microcosm of the national economy. No more. The most prosperous areas are those that specialize in at least one industry, which they then "export" to the surrounding region, nation, or world. Examples? Think of San Jose's technology, Los Angeles's movies, Orlando's Disney-based tourism. Charlotte may be a second-tier city, but it is a top-level banking center, the fourth largest (by bank assets) in the nation. A key specialty for some cities these days is internationally traded goods and services. Most economists figure that export growth will fuel the recovery, which in turn will boost anyone who's doing business overseas.
Yet it's diversified enough to weather a downturn. The one blot on Seattle's robust growth of recent years is the area's dependence on The Boeing Co.: the city fell with Boeing two decades ago and rose with it in the '80s. Today the company still has a huge backlog of orders, from both U.S. and foreign customers. But turbulence in the airline industry could affect Boeing's order book, and the reverberations would shake the region. "Everyone watches to see what happens with Boeing," says Phil LeDuc, vice-president of $1.6-million LeDuc Packaging Enterprises Inc.
Other cities, by contrast, are less dependent on their key industries, let alone on any one company. Los Angeles has become a growing manufacturing and financial center as well as the world's entertainment capital. Indianapolis boasts a thriving insurance business as well as plenty of industrial employers. And who could fault the flourishing economy of Lancaster, Pa., which has done well across a lot of boards? Lancaster's metro area may be small, but it's a regional leader in agriculture, manufacturing, and -- thanks to the Amish -- tourism. "We're on the tail end of recessions generally because we're so diversified," says Sam Lombardo, chief executive of a $5.5-million insurance agency in the city. "And when the recovery comes to the rest of the country, I think Lancaster will begin to spread its wings."
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New Business
The one growth factor no metro area can ignore is new and growing business. "One of the things we've noticed is the number of small and medium-sized manufacturing companies that have expanded their operations and created jobs here," says an appreciative Timothy Monger, president of the Indianapolis Economic Development Corp., pointing out that large manufacturers have generally been downsizing. Among the upstarts: 11-year-old Pure Corp., a manufacturer of industrial cleaners, which so far has barely noticed the recession. "We've experienced annual growth rates of about 20%," says CEO Ted Schenberg, "and we expect another 15% gain in 1991. Things look pretty bright in Indianapolis."
