If you know which signs to follow, you'll find thriving markets all over America

What a difference a place makes. Boston's theme song these days could be "Brother, Can You Spare a Dime?" In a grim reprise of its mid-1970s blues, the city has lost tens of thousands of jobs, its unemployment rate nosing toward double digits. Residents of Charlotte, N.C., by contrast, are whistling while they work. Sure, there's a recession on -- meaning that Charlotte's jobless rate has crept up to a still-tight 4%. Between 1988 and 1990 the Charlotte area gained 26,000 new jobs.

Disparities of such magnitude spill into every corner of the business world, affecting the health of existing companies and the life prospects of new ones. A stark symbol of the difference: Blackstone Bank & Trust Co., a four-year-old Boston start-up designed as a high-service community bank, recently went belly-up, its deposits transferred to a larger competitor. Charlotte's not-quite-two-year-old Bank of Mecklenburg, founded on much the same concept, has grown to $52 million in assets; cofounder John Ketner is predicting a profitable 1991, based mainly on loans to small and midsize companies. Quick: which city would you rather be doing business in?

The United States has always been a collection of local and regional markets rather than one big one, and business conditions have always varied from place to place. "People talk about regional recessions as if they're unusual," says Stanley Duobinis, senior vice-president with The WEFA Group, an economics consulting firm in Bala Cynwyd, Pa. "But you can go back to 1946 and you won't find one that doesn't vary from region to region." Today's fax-and-computer communications networks may only intensify the disparities between the haves and the have-nots. Red Rose Graphics Ltd., of Lancaster, Pa., for example, is opening its second branch office in fast-growing Florida rather than in slower-growing areas closer to home, in part because work in process can easily be sent back and forth electronically.

Certainly the current recession has been drastically tilted toward the Northeast. "New England alone will account for one out of every five job losses nationally," predicts Beth Burnham Mace, an economist with DRI/McGraw-Hill Inc., the economic-forecasting and consulting firm. "Yet the region has only 6% of the nation's jobs." While the Boston-to-Washington megalopolis staggers, plenty of cities are growing apace -- and not just in Florida and California. Seattle gained 23,000 jobs between 1988 and 1990, Dallas 66,000, with only modest letups in more recent months. Even the Midwest has held its own, with regional capitals such as Indianapolis and the Twin Cities pausing only slightly from the rapid recovery of the late 1980s. "Indianapolis must have one of the strongest economies in America," brags Scott L. Toussaint, whose temporary-help business is enjoying its best year ever. "If I weren't already in this city, I'd run, not walk, here."

Growth-minded entrepreneurs are always tempted to run to where business is best, whether it's to start a new company or expand an existing one. Before you do any running of your own, however, remember that the nation's metro areas are as volatile as they are different. Not so long ago the New York City area was poised for several years of growth, while Dallas -- though few knew it -- was on the edge of collapse. Today Dallas is sailing out of the economic doldrums, and New York is sinking into them. But how long will either city continue on its current course? And how long will Charlotte or Indianapolis or Seattle stay on the fast track? As mavens of any marketplace know, the past is seldom an adequate guide to the future -- particularly when there's a recession on.

Faced with such uncertainty, Inc. this year is forgoing its customary top-to-bottom ranking of metro areas. Instead, we've assembled a variety of data indicating not only which cities are growing, but why, and which can expect to do best in the future. One result of this investigation: a list of top performers no businessperson can afford to ignore. (See "Editors' Choice," page 5.) These are cities -- two in every region of the country -- that are outpacing their neighbors during the current slowdown and are best poised to take advantage of the recovery when it comes. If awards were handed out for solid, long-term growth, these are the cities that would win the ribbons.

But you don't need to live in a best-of-show region to understand the importance of your city's health to your company's health. What you need to know is what separates the winners from the losers.

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A growing economy requires a growing population. That's a truism, but it's been given a twist by the demographics of America in the 1990s. In the past workers went where the jobs were, leaving Mississippi or Appalachia for Chicago and Detroit. In today's labor-short economy, argues MIT researcher David L. Birch, jobs have to follow workers.

"The demographics cut in sharply in the mid-1980s," Birch explains. "That's when the baby boom was finally absorbed into the labor force and we began seeing unemployment rates down around 3% and 4%. Today the work force can dictate the location of employment." Economic growth is thus beginning to follow population movements, rather than vice versa. "The places that are doing well are the places people want to be."

That, says Birch, is why Sun Belt cities such as Las Vegas and Fort Myers, Fla., perennially top the population-growth charts. Forget jobs: people move away from the high costs and cold of the North to places that look cheaper and more pleasant, and feel confident they'll find work once they get there. Businesses then spring up to serve them; others spot an abundant supply of labor and move in. Even in Florida, the influx of residents no longer consists mainly of retirees. The working-age population in Fort Myers and Fort Pierce, for example, has been growing at more than four times the national rate.

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.

* * *

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."

Writ large, entrepreneurial bullishness of this sort translates into the creation of whole new industries, which in turn lay the groundwork for future metro specialties. Orlando has spawned a budding film-and video-production industry, swelling from $2.5 million worth of activity in 1986 to more than $82 million last year. The Seattle area (Microsoft, Aldus) and Salt Lake City area (WordPerfect, Novell) have developed booming software industries. Burlington, Vt. -- thanks to an enabling state law -- has recently become home to some 215 "captive" insurance companies, self-insuring subsidiaries of large corporations or trade associations. The effect on entrepreneurship: most of the captives have hired newly formed management companies to handle their paperwork.

As a statistical matter, new-business creation follows population movements, which is why most of the "business starts" leaders on the accompanying charts are also growing in population. But every now and then entrepreneurship sprouts in some unexpected places, giving a boost to a metro area that would otherwise be unremarkable. Greater Philadelphia probably houses more biotech start-ups than any other place east of San Francisco Bay. Akron has christened itself Polymer Valley and has spawned dozens of new, growing plastics-related enterprises.

Then there's the unlikely case of the Utica-Rome metro area in central New York State. Like the rest of its region, Utica has seen grim times in recent years; factories have been closing, people leaving. The city's earnings growth between 1988 and 1990 was less than half the national average. But staying behind, explains one resident, are "hard-core Uticans," who have created a healthy number of high-growth businesses. Among them, Conmed Corp., a producer of medical devices and disposable products, is up to an estimated $35 million in sales this year, from less than $20 million two years ago.

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A Tale of Two Cities

All those factors play off one another, of course, creating virtuous (or vicious) cycles of growth (or decline). Take the examples of Boston and Charlotte, which illustrate the dynamics of boom and bust in today's economy.

For Boston, the Massachusetts Miracle came to an abrupt end: after years of expansion the region suddenly found itself an economic basket case. What happened? "A whole bunch of cycles came together at once," says Stanley Duobinis, "and they were all negative." Housing and commercial real estate were overbuilt. When the market turned, banks from tiny Blackstone to giant Bank of New England found themselves insolvent. Meanwhile, defense spending was shrinking and the minicomputer industry, headquartered in eastern Massachusetts, was in the tank. The result: rising unemployment, shrinking credit, and a state-government fiscal crisis, all feeding an increasingly sour outlook on the part of consumers and businesspeople. Between 1988 and early 1991, The Conference Board's widely watched consumer-confidence index for New England fell more than 75%.

Charlotte's story in recent years was different in every particular. For decades the city was a sleepy financial and commercial center for the cotton and textile industries, serving the Piedmont region and not much more. As the Southeast grew, however, Charlotte was well situated to cash in. Its biggest banks, solidly based in cotton and textiles -- and already operating statewide -- began moving into other parts of the region. National manufacturers and wholesalers began locating warehouse and distribution facilities around the city, taking advantage of its strategic location on I-77 and I-85. Today Charlotte is number four nationally in banking (as measured by assets) and number six in wholesaling. The population of surrounding Mecklenburg County grew by nearly 12% between 1985 and 1990, with employment up 22%.

The result of all that development: a cascade of economic benefits, each one feeding the other. Earnings up 5% and retail sales up 10% in the last two years, both figures well above the national average. More foreign companies locating in the region, thanks in part to a fast-growing international airport. And yes, the region's economy is increasingly diversified. Despite Charlotte's specialization in banking and distribution, manufacturing employment has increased nearly 10% since 1985. The city is also emerging as a major regional health-care center.

Maybe not surprisingly, Charlotte has become a great place to start a company, ranking third nationally in the number of start-ups and 11th in proportion of fast-growing businesses. Ten-year-old Broadway & Seymour, a $37-million software developer that counts banks among its major clients, has been growing by more than 30% a year. John Ketner's new Bank of Mecklenburg has crept into a local-banking niche vacated by ever-expanding giants such as First Union National Bank and NCNB National Bank. Power-plant operator Cogentrix Inc., twice the top-ranked company on Inc.'s annual listing of the 500 fastest-growing private businesses in America, is based in Charlotte. One factor in capital-hungry Cogentrix's early growth was the fancy financial resources it could find close to home. "We'd call investment bankers in New York, and they wouldn't even return our calls," says project manager Robin Spinks with a laugh. "Our banking relationship with NCNB was very important to us in our early days."

And what of the future? One big strike against Boston, say economists, was the high rents and wage rates generated during its boom years. And one big attraction of Charlotte has been its relatively low costs. In time -- but probably not for several years -- those factors will tend to equalize. Ultimately, each city will have to trade on its long-term assets: Boston on its research universities and highly educated work force, Charlotte on its sunny climate and strategic location. What's likely to make the difference is how many people choose to build businesses in either city.

At the moment, the odds favor Charlotte. But metro areas have given us more than a few surprises over the years, as policymakers and businesspeople have learned to invent or take advantage of new strengths. The top performers on the following pages weren't always the best cities for business, and they may not be so forever.

Still, right now, they're the places to be.



1988 to 1990

Riverside/San Bernardino, Calif. 10.9%

Las Vegas, Nev. 10.9%

Naples, Fla. 9.6%

Fort Pierce, Fla. 8.7%

Fort Myers/Cape Coral, Fla. 8.5%


1988 to 1990

Fort Pierce, Fla. 11.2%

West Palm Beach/ 11.1%

Boca Raton, Fla.

Anaheim/Santa Ana, Calif. 11.1%

Fort Lauderdale/Hollywood, Fla. 10.0%

Santa Rosa/Petaluma, Calif. 9.9%


1988 to 1990

Fort Pierce, Fla. 10.7%

West Palm Beach/ 10.4%

Boca Raton, Fla.

Anaheim/Santa Ana, Calif. 9.8%

Fort Lauderdale/Hollywood, Fla. 9.1%

Santa Rosa/Petaluma, Calif. 8.5%

Oxnard/Ventura, Calif. 8.0%

Las Vegas, Nev. 7.8%

Ocala, Fla. 7.6%

Middlesex/Somerset/ 7.6%

Hunterdon, N.J.

Santa Cruz, Calif. 7.4%


1988 to 1990

Fort Lauderdale/Hollywood, Fla. 18.2%

Anaheim/Santa Ana, Calif. 17.9%

Santa Rosa/Petaluma, Calif. 16.6%

Orlando, Fla. 16.4%

Santa Cruz, Calif. 16.1%

Atlantic City, N.J. 16.0%

West Palm Beach/ 15.6%

Boca Raton, Fla.

San Jose, Calif. 15.0%

Oxnard/Ventura, Calif. 14.0%

Burlington, Vt. 13.9%


1988 to 1990

Las Vegas, Nev. 1.7%

Orlando, Fla. 1.4%

Charlotte, N.C. 1.3%

Atlanta, Ga. 1.2%

Hickory, N.C. 1.2%

Charleston, S.C. 1.2%

Nashville, Tenn. 1.2%

El Paso, Tex. 1.2%

Riverside/San Bernardino, Calif. 1.1%

Greenville/Spartanburg, S.C. 1.1%


1988 to 1990

San Jose, Calif. 8.1%

Utica/Rome, N.Y. 7.1%

Washington, D.C. 6.9%

Hickory, N.C. 6.7%

Terre Haute/Bloomington, Ind. 6.6%

Lancaster, Pa. 6.5%

Williamsport/State College, Pa. 6.4%

Burlington, Vt. 6.4%

Reno, Nev. 6.4%

Tallahassee, Fla. 6.3%



America's best cities for growing a business


Blue Ribbon: Burlington, Vt.

Escaping New England's gloom

Scorecard (1988 to 1990)

Population growth: 3.1%

New jobs: 5,300

New companies: 35

High-growth companies: 43

Burlington's recession has been kinder and gentler than the rest of New England's. The difference? The city is home to stable employers such as IBM; its breathtaking Lake Champlain location ensures a steady stream of well-educated newcomers; and its proximity to Montreal attracts Quebec companies seeking a U.S. foothold. A second factor: astute public policies. Vermont's strict development laws, for example, shielded the area's banks from a real estate boom and bust. "The isolation doesn't hurt us," says Holographics North founder John Perry. "We're only five minutes from the airport. Heck, everybody's only five minutes from the airport."

Runner-Up: Lancaster, Pa.

Lancaster's biggest employers are an interior-furnishings manufacturer, a printer, a hospital, and a farm-equipment maker. Such variety, says finance professor Gary Leinberger, has spared the city the fate of its less diversified neighbors. The prototypical Lancaster entrepreneur: S. Dale High, whose family-owned High Industries Inc. has expanded from steel fabrication and concrete production into real estate, hotels, food services, and compact-disc manufacturing.


Blue Ribbon: Orlando, Fla.

Oranges and tourists? No longer

Scorecard (1988 to 1990)

Population growth: 7.6%

New jobs: 40,800

New companies: 276

High-growth companies: 223

Talk about your big, stable industries: Orlando is home to Walt Disney World, Universal Studios Florida, and dozens of other theme parks and attractions; it boasts the most hotel rooms of any U.S. city. Even so, business travelers at Orlando International Airport now outnumber tourists 56 to 44. Growing manufacturers such as Florida Polymers have sprung up (or moved in) to take advantage of the city's expanding work force. Distributors and wholesalers that once operated out of Atlanta have set up facilities in Orlando, at the center of what's now the fourth-most-populous state. New industries include film production, military simulation and training, and laser-optic technologies.

Runner-Up: Charlotte, N.C.

Last year alone 413 companies started in or expanded or relocated to Charlotte, investing $266 million and creating 6,800 new jobs. One effect of the recession: Charlotte companies aren't placing quite so many help-wanted ads in West Virginia newspapers.


Blue Ribbon: Indianapolis

Middle America's best-kept secret

Scorecard (1988 to 1990)

Population growth: 1.6%

New jobs: 12,800

New companies: 239

High-growth companies: 181

The old jokes told of "Naptown" and "India-no-place." Just don't laugh too hard. For while Rustbelt neighbors have scrambled to stave off hard times, Indianapolis has sailed into the '90s with a well-diversified economy. Traditional smokestack employers have been supplemented by buttoned-down newcomers such as discount broker Charles Schwab, which recently sited a branch there. Certainly the local marketplace has been good to Technical Resource Group, an executive-search firm that's grown to $2 million in just five years. "It's because of the industries we trade in -- engineering, health services, insurance," says president Roger Brummett. "We've really been insulated from the effects of the recession."

Runner-Up: Minneapolis/St. Paul

Factor out an overheated construction industry and you'll still find the Twin Cities spawning small-company growth. One happy company owner: McRae Anderson, head of a $1-million interior landscape design and maintenance business in St. Paul. "Our sales were up last year," says Anderson. "They will be this year, too."


Blue Ribbon: Dallas/Fort Worth

On the way back

Scorecard (1988 to 1990)

Population growth: 4.2%

New jobs: 66,400

New companies: 883

High-growth companies: 686

Five years ago, says University of Texas professor Donald Hicks, the Dallas/ Fort Worth "metroplex" was in "free fall." But rents and land prices in the area got so low that -- surprise! -- businesses began to move in. Last year Dallas ranked first nationally in the number of new or expanded corporate facilities. And the hard years of the recent past have left companies of all sizes in fighting trim. "We had a good year," says Aggie Jordan-DeLaurenti, who runs a $14.5-million technical-training company. "But I've learned to be real careful about expenses." One engine for future development: the area's fast-growing telecommunications industry, number two in the nation, with the 10 biggest companies alone employing more than 50,000 people. Among the up-and-comers is SRX Inc., which recently signed a contract with Motorola to market a newly developed emergency 911 hardware-and-software system. The company's anticipated 1991 sales: about $25 million.

Runner-Up: Salt Lake City

Like Dallas, Salt Lake City went into a slump a few years ago -- and now, says William A. Maasberg, CEO of software developer Libra Corp., "we're going to lead the way out. We've got a lot of good, solid new industry here." Much of it is close to Maasberg's professional heart: the area has 450 computer and software-related companies, many started in the last several years.


Blue Ribbon: Seattle

Everybody's favorite city

Scorecard (1988 to 1990)

Population growth: 5.0%

New jobs: 22,600

New companies: 414

High-growth companies: 368

Seattle is Miss Popularity among cities. Places Rated Almanac ranks it number one. Company CEOs polled by real estate specialists Cushman & Wakefield say it's the best place to locate a business. The city's only problem? Too many people. "It's becoming a victim of its own appeal," reports The New York Times Magazine. Problems like that we all should have. "Growth may be slowing, but I don't think we're going to see anything that could be labeled a recession here," says Douglas H. Pedersen, an economist at Security Pacific Bank Washington.

Seattle doesn't rank high for new-company formation; more than some cities, it's dependent on one big employer, Boeing. But entrepreneurs who do put down roots there find the soil fertile. Annie Searle, a Midwest native who moved to Seattle 14 years ago, is now CEO of $1.5-million Delphi Computers & Peripherals. "Frankly, our company's on a growth trajectory that's compounding, not slowing down," says Searle. Let company owners in other regions worry about cautious bankers and credit crunches. "I don't have any problems at all getting money."

Runner-Up: Riverside, Calif.

The Inland Empire -- 50 miles east of downtown Los Angeles -- is one of the fastest-growing metro areas in the country, meaning there are plenty of people to staff (and buy from) new companies. Compared with much of Southern California, it's cheap. "We had a lot of employees who couldn't afford more than an apartment," says Darrell Ratliff of Natives Sportswear Inc., a clothing manufacturer that recently moved there from Orange County. "When we relocated here, they could afford to buy their first home."

Behind the Numbers

Data on population, earnings, employment, and retail sales were provided by Woods & Poole Economics Inc., in Washington, D.C. Data on business starts and high-growth companies were compiled by Cognetics Inc., in Cambridge, Mass. The business-starts rate is the number of companies with 10 or more employees founded between January 1988 and July 1990, as a percentage of all businesses in the area.

High-growth companies are those whose employment growth, in both absolute and percentage terms, exceeds a certain threshold. The percentage figure indicates the number of high-growth companies as a proportion of all young companies in the region.

The data were assembled and edited by Special Projects Editor Sara Baer-Sinnott. Research assistance was provided by Alessandra Bianchi.