The Perception Buster

2002 Southern State Business Climate Index

Don't look for the South's usual subjects at the top of SB&D's first annual state business climates ranking.

By Mike Randle
(mike@sb-d.com)

In 10 years of publishing Southern Business & Development, we have never done a ranking of Southern state business climates. Each year we rank the top job and investment deals that occur in the South. It's called the Southern Business & Development 100. The SB&D 100 ranking, published each spring edition, strongly hints at which states have the best business climates. If a state is turning more corporate deals than its peers, then that's a pretty good indication the state features a favorable business climate.

Recently, two other state business climate rankings were published and released. One was conducted by Site Selection magazine and the other by Development Counsellors International (DCI). We believe the results of those two rankings were so erroneous that we were motivated right at deadline to give readers our own ranking of current Southern state business climates.

But how do you find a favorable state business climate? That's a good question, isn't it? It's a question that holds a revealing answer, one that could turn your next expansion or relocation into a boon or bust. That's if you can find the states with the best business climates through all of the muck of information provided by thousands of sources in what we now call the 21st century.

If anything, business climates can change rapidly, as we've seen since this current national administration has come into power. Now, I'm not slamming the Bush administration. It's just that the changes in our economy occurred simultaneously with Bush and his folks setting up shop. The same could have easily occurred under a Gore administration. Regardless, it's unknown how much blame for this recession can be placed on the president. Now, if there isn't a turn around soon, there could be plenty of blame to go around for it not ending.

It's obvious to everyone that the economy of 2002 has nothing in common with the economy of 2000. So in order to accurately examine a state's business climate, you had better have economic data that's as current as possible to work with. You can find current data to use in a business climate ranking that's no more than 30 days old if you're willing to go the extra research mile.

Yet, what data should you use in order to rank state business climates? Should favorable business climate rankings be left up to corporate or real estate executive's opinions? Naw, there's got to be something better than opinions derived from surveys, no matter where the opinions come from. Regardless, some business climate rankings are done that way. For example, the state business climate ranking we are about to reveal by DCI was concluded from a survey.

Should population increases be used to judge a state's business climate? Well, that has some merit. When companies expand to states, people move with them.

Should economists be polled to find great state business climates? Again, opinions and some uneducated perceptions will undoubtedly find a way into the equation.

Should mass layoffs (those of 50 jobs or more) be thrown into the mix when ranking a state's business climate? Absolutely. While this economy makes it difficult to find states that are hot, it can easily identify which states are not. But if you are going to use data of this sort in your site search, it must be done on a per capita basis, more specifically, on a per million residents basis. If a state is experiencing a rash of mass layoffs per capita, then something is wrong, at least temporarily, with its business climate.

How about using new and expanded corporate facilities as a benchmark for outstanding state business climates? Now that's an excellent way to judge a state's business climate as long as you have current data to go by. What about adding unemployment rates and net labor force increases or losses to new and expanded corporate facilities to judge business climates? Now we're talking as long as the data is current. Finally, add to that current population increases or decreases and the aforementioned mass layoffs and you might develop a winning formula to judge a state's business climate. By the way, we define current data as nothing more than a year old.

It's our opinion there's no single way to judge a favorable state business climate. On the other hand, we strongly believe that a ton of emphasis should be placed on how a state is performing in the job generation sector, how well it is retaining industry and its overall unemployment rate.

Those three factors are being used to earn or lose points in the First Annual Southern State Business Climate Index done by SB&D. The methodology goes like this: Southern States gain or lose points based on the following data derived from the Bureau of Labor Statistics for the period September 2001 to September 2002 (see adjoining Chart No. 1).

Chart No. 1

SB&D's State Business Climate Criteria and Methodology

+1 Point for every .10 percent drop in unemployment since 9/11
--1 Point for every .10 percent gain in unemployment since 9/11
+1 Point for every increase of 1,000 in civilian labor force *PMR
--1 Point for every decrease of 1,000 in civilian labor force *PMR
-- 1 Point for every 10 mass layoffs *PMR

*PMR=per million residents

So the Criteria is Set and the Lines are Drawn

On September 22nd of this year, Development Counsellors International Ltd. (DCI), a well-known New York-based marketing firm, delivered to members of the International Economic Development Council (IEDC) during its annual conference in Oakland, a report on the state of state business climates. The report was based on a survey of 287 senior-level corporate executives. The report found that currently Texas has the nation's No. 1 business climate with North Carolina, South Carolina, Florida and Georgia rounding out the top five in that order. DCI's survey also concluded that California, New York and Massachusetts ranked at the bottom of the favorable business climate survey. That we agree with. Yet, in our opinion, three of DCI's five-best business climates in the U.S., while all Southern, are all wrong if indeed the current business climate is the center of discussion as opposed to Southern state business climates in 2000 or 1999.

While Texas, North Carolina and Florida have performed as three of the most dynamic economies in the South and the U.S. over the years -- along with Georgia, Virginia and Tennessee -- none of those six states would make our top five business climates in the South, much less the nation right now except for Virginia. And Virginia barely makes our top five. Times change, especially in recessions and this year there's an unlikely group of Southern states leading the way in favorable business climates.

On November 2nd, 2002 (that's a mere month ago, or so folks), Site Selection magazine named North Carolina as the No. 1 state business climate in the nation. North Carolina edged out Michigan, Texas, Florida and Georgia. That's Site Selection's top five state business climates for 2002. Or is it? The announcement came on November 2nd and is published in the November 2002 issue and on its Web site. But the data Site Selection used to rank its top five state business climates came from years' 1999-2001. Why?

Note to Site Selection editors: The current economy has absolutely nothing to do with the economy of 1999-2000. To give a high business climate ranking to Michigan in 2002 is absurd. This year Michigan has lost 21,000 people in its labor force, has seen 1,362 mass layoffs and its unemployment rate has risen since 9/11. In contrast, there are a bunch of states that have gained net jobs this year.

To make North Carolina your No. 1 business climate in the nation and announce it in 2002 is equally absurd. Both of those states are traditional economic juggernauts and have enjoyed many, many years of favorable business climates. But this year is not one of them.

We couldn't help but notice in Site Selection's 2002 rankings that California was sitting in the favorable position of seventh-best business climate in the U.S. If our argument against North Carolina sitting at No. 1 and Michigan at No. 2 in any business climate ranking doesn't convince you, how about this regarding California: Of the 22,308 mass layoffs announced in the U.S. since 9/11/01, 7,417, or more than one-third the nation's total, have come out of California. In fact, in the past year California's mass firings exceeded the South's total of 6,534. It should be noted that the South's population is more than triple the population of California. At least DCI recognized California as a state with one of the worst business climates in the nation in 2002 in its ranking.

By studying carefully how well states are faring in retaining industry and creating jobs this past year (Sept 2001 to Sept 2002), one will find that many of the South's smallest states are outperforming the larger ones, possibly for the first time in the last 10 years. Current economic conditions in Southern states with less than five million in population such as Alabama, Arkansas, Kansas, Mississippi, Oklahoma and South Carolina are far better than conditions currently found in Texas, North Carolina and Florida, three states that made both DCI's top five business climates and Site Selection's top five business climates for 2002.

Chart No. 2

A Comparison: Top Five 2002 Business Climate Rankings

Site Selection

North Carolina
Michigan
Texas
Florida
Georgia

DCI

Texas
North Carolina
South Carolina
Florida
Georgia

Southern Business & Development

Arkansas
Kansas
Maryland
South Carolina
Virginia

Site Selection's Criteria: New plants in 2001; total new and expanded facilities for 1999 through 2001; total new and expanded facilities per one million residents for 1999-2001; total new and expanded facilities per 1,000 square miles; survey of corporate real estate execs.

Development Counsellors International Criteria: Survey of 287 senior corporate execs.

Southern Business & Development's Criteria: One point gained for every .10 percent drop in state unemployment rate since 9/11/01; one point lost for every .10 gain in unemployment rate since 9/11; one point gained for every 1,000 increase in civilian labor force per million residents since 9/11; one point lost for every 1,000 decrease in civilian labor force since 9/11; one point lost for every 10 mass layoffs (over 50 jobs) per million residents since 9/11.

Yes, the recession of 2002 has brought about a banner year for economic development officials in some of the South's smallest states. On the flip side, the 2002 recession has hammered many of the South's largest states. The reasons why are obvious, but apparently not to officials with Development Counsellors International or Site Selection. Texas has seen its SB&D 100 points (go to www.sb-d.com for information on this annual ranking if you are not familiar with it) drop from the 1,400 mark in 1997 to the 600 mark last year. It has also seen its energy trading industry vaporize, with tens of thousands of jobs lost.

Florida has been blindsided by the tourism, airline, telecom and dot-com meltdowns. And North Carolina, the South's second-largest manufacturing state, has seen tens of thousands of manufacturing jobs go the way of NAFTA in the last two years. In fact, if you are looking for industrial space, North Carolina is the place to look. Millions and millions of square feet of prime industrial and warehouse space are vacant ... uh, in Charlotte. Tens of millions of square feet are available statewide.

There are several reasons why most of the South's smallest states have such positive business climates in 2002. For one, virtually every one of them didn't participate in the boom and busts of the dot-com and telecom sectors. And with very conservative, regulated utilities, the South's smallest states have not experienced the economic ups and downs of energy trading. It could be argued that some of the South's best business climates in 2002 are indeed that because their economies are less vulnerable to downturns.

Yes, the recession of 2002 has opened a window to the South's smallest states. This year has temporarily closed, if not partly, the window for traditional large states in the South. Once again, facts back up our claim and our argument that in fourth quarter 2002, there's no possible way that Texas, North Carolina and Florida are even close to the best business climates in the South, much less the nation as DCI's and Site Selection's reports indicate.

Let's Look at Some of the Successes Seen in Smaller Southern States This Year

Alabama

Four days prior to this article being written, a Hyundai parts supplier announced a $40 million, 400-job plant and a Michigan-based aerospace company announced a $268 million, 700-job facility in Alabama. Normally that's a good four months of work for Alabama officials. These announcements were made on the same day. A few days earlier, a paper company announced a $240 million deal in northwest Alabama. Just three months prior, leading auto parts supplier Johnson Controls announced a deal in Tuscaloosa that will end up generating 500 jobs. Of course this year Hyundai announced the largest employment deal in the South to date when it chose a site south of Montgomery for an auto assembly plant that should employ 3,000.

Arkansas

For the first time ever, we've seen Arkansas economic development officials absolutely giddy about their performance in turning deals. Prospect activity in Arkansas is at an all time high. Whirlpool announced a 700-job deal this year and Raytheon a 350-job deal. And when has Arkansas had a company like Toyota put it on a two-site short list for an automotive assembly plant? The answer is never.

South Carolina

Two-thousand-and-two has also been very kind to South Carolina. After several sub par years, South Carolina has turned some exceptional deals in 2002. These are led by large expansions by Michelin, Freightliner and BWM. Year-to-date, it's the number of deals being announced in South Carolina that's more impressive than the mega-projects. When the SB&D 100 is published this spring, expect to see a healthy list of 200 and 300-employee announcements make our lists from the Palmetto State.

Kansas

We've never seen as many corporate deals coming out of Kansas than what's occurred so far this year. GM is investing $500 million at its Kansas plant, Target announced one of the largest employment announcements in Kansas in years and Goodyear is investing $100 million in the state.

Mississippi

Like Alabama, this state is benefiting from automotive suppliers that are investing in the state in record numbers. Nissan's decision in 2000 to build its newest automotive facility in Mississippi has put the state on the international map for the first time.

Oklahoma

Oklahoma's job generating numbers are up this year as well. American Woodwork announced a 500-job deal, Goodyear has announced a $250 million expansion, Noble Foundation invested $85 million at its lab in Ardmore and SBC hired 500 this year.

As mentioned, current economic statistics clearly show that six of the South's nine-smallest states are growing in this recession, while four of the region's eight-largest states are struggling.

To begin, let's look at comparable numbers first. The South's largest states are (those with over 5 million in population): Florida (16 million); Georgia (8.2); Maryland (5.3); Missouri (5.6); North Carolina (8.1); Tennessee (5.7); Texas (21.0); and Virginia (7.2). Since 9/11, these states have seen a 2.1 percent cumulative increase in unemployment (using September 2002 figures). On the other hand, some of the South's smallest states such as Alabama (4.4 million); Arkansas (2.7); Kansas (2.7); Mississippi (2.8); Oklahoma (3.4); and South Carolina (4.0) show a collective unemployment rate that has dipped .4 percent since September 11th. In fact, three of the six aforementioned states have seen their unemployment rates drop in the last year.

Chart No. 3

Mass Layoffs in the South *PMR

(Ranked best to worst since 9/11/01)

1. West Virginia 16.0
2. Maryland 18.5
3. Georgia 35.8
4. Arkansas 37.0
5. Mississippi 38.6
6. Tennessee 42.1
7. Oklahoma 42.3
8. North Carolina 42.7
9. Louisiana 46.5
10. Virginia 47.0
11. Kansas 55.5
12. Texas 64.0
13. Florida 77.7
14. Missouri 87.7
15. Alabama 99.5
16. South Carolina 120.5
17. Kentucky 121.5

* PMR=per million residents.

Many more statistics support our claim that DCI and Site Selection are way off with their current business climate rankings. For example, in terms of labor force gains since 9/11, the South's largest states, including those that made both DCI's and SS's top five, have created a total of 621,000. Those large states have a collective population of 77 million persons.

As for labor force gains in the South's smallest states, the total is approximately 275,000 since September 11th, 2001. The South's smallest states have a population of just 24 million. On a per capita basis though, it works out like this: The South's largest states: 8,064 labor force gains per million residents (*PMR). The South smallest states: 11,459 gains per million residents since 9/11. I can write without hesitation that these figures haven't been seen in the American South's recent history, certainly not since the last recession of 1991/1992, when this magazine was launched.

To conclude, I'd like to remind our readers that the criteria we are using to rank the South's best state business climates doesn't include surveys or any other subjective material. Like the SB&D 100, our business climate ranking is centered on where the rubber meets the road - job creation and industry retention.

Chart No. 4

Labor Force Increases or Decreases in Southern States *PMR

(Ranked best to worst since 9/11/01)

1. Kansas 29,200
2. Arkansas 24,000
3. South Carolina 16,700
4. Georgia 15,000
5. Virginia 12,200
6. Texas 11,900
7. Maryland 10,300
8. Tennessee 9,700
9. Kentucky 6,600
10. Alabama 6,100
11. Florida 6,000
12. Oklahoma 5,100
13. Mississippi 4,100
14. West Virginia <--1,400>
15. North Carolina <--2,500>
16. Missouri <--4,600>
17. Louisiana <--11,200>

* PMR=per million residents.

You can email Mike Randle regarding this article: mike@sb-d.com

The South's Best Business Climates 2002

Has worked to earn a net gain of 64,700 in labor force, No. 2 in the South per million residents, while losing just 1,000 net manufacturing jobs, all since 9/11/01. Unemployment rate has dropped from 5.2 to 5.0 percent. Mass layoffs in quarter No. 2 of this year totaled just nine, with only 100 in the last year. Our reasons behind Arkansas being named the No. 1 business climate in the South this year are partly supported by the fact that they have turned more big deals this year than any year in the last 10 years. Furthermore, when has a company like Toyota actually put Arkansas on a two-site short list?

Yes, Kansas is in the South according to our relationship with the Southern Economic Development Council (SEDC). And yes, we're glad they claim they are Southern because their business climate is pretty good right now with an 80,000 increase in its labor force since 9/11, tops in the region *PMR. Kansas' unemployment rate has jumped only .3 percent in the last year and just 12 mass layoffs were announced in the state in the second quarter.

Maryland's unemployment rate has dropped from 4.2 to 4.0 in the last year and the state has experienced the second-lowest number of mass layoffs per million residents of any state in the South during that time. Maryland is outperforming all states in the South that have more than 5 million in population.

Has lost 13,000 manufacturing jobs, a relatively high total, yet gained 66,400 overall in its labor force since 9/11. This year, SC is hiring them and firing them as indicated by large point totals coming from jobs gained and jobs lost from mass layoffs. South Carolina's unemployment rate has dropped almost half a point from 5.7 to 5.3 in the last year, though.

The Old Dominion would absolutely rank in our top five Southern state business climates in each of the last six years and would be No. 1 in at least three of those years. Virginia's economy shot the moon over a five-year span with telecom and dot-com clearly at the helm. The recession has hurt this state, but not as bad as other large states. Virginia posted an increase of 88,000 to its labor force since 9/11. There were only 25 mass layoffs in Q2 2002.

Georgia has seen its unemployment rate jump .7 since 9/11. Yet, last year, not this year, was the year the Peach State got hammered by the recession. It looks as if Georgia is well on its way to recovery from Atlanta's massive loss of jobs in 2001. If anything, Georgia is recovering faster than other large Southern states.

Tennessee's business climate isn't so bad with a .2 percent increase in unemployment since 9/11 and a positive gain of 55,000 to its labor force. What has been bad this year is the Volunteer State's political climate. It has been awful and has had a negative effect on turning deals. The new administration has its hands full. Relatively low mass layoff total.

Alabama's business climate is as good as it gets, but the most current numbers available don't show it yet. While the state has seen jobs increase since 9/11 and its unemployment rate is the same for the most part over the last year, Alabama landed almost $1 billion in corporate investment in October. Yes, that's October of this year. You can't get data much more current than that. Other than when Mercedes, Honda and Hyundai announced, when has Alabama had a billion-dollar month? The answer is "never."

The automotive, polymer and gaming industries continue to drive this small state of just 2.8 million people. Just 108 mass layoffs were experienced by this economy in the last year. A net gain of 12,000 to its labor force in the last year is an impressive total considering the size of the state. The potential of automotive job gains is awesome. Unemployment is unchanged since last year.

The Sooner State's economy is essentially unchanged from the fourth quarter of 2001. Its unemployment rate is the same as this time last year and it has enjoyed an 18,000 jump to its labor force. Big deals, however, have been hard to spot. Saw only seven mass layoffs second quarter and has lost but 4,000 manufacturing jobs in the last year.

Good points from unemployment rate dropping from 5.6 to 5.2. We haven't seen an increase in deals over last year, though. Where Kentucky is getting whacked is in the business retention sector. Leads the South in mass layoffs per million residents with 121.5, or a total of 486 since 9/11.

Florida's unemployment rate since last year is unchanged. Net job creation looks strong but on a per capita basis that figure isn't competitive. With over 16 million in population, Florida has to do better. Its 275 mass layoffs in the summer quarter was the highest total of any Southern state and the highest in the South per million residents. Lost over 20,000 manufacturing jobs since 9/11.

Texas remains a job-generating machine with nearly 250,000 added to its labor force since 9/11. But the state is losing jobs faster than it's creating them. Why else then would Texas' unemployment rate rise a full point since 9/11? Texas has seen 1,344 mass layoffs since 9/11, but on a PMR basis, that's about a middle-of-the-pack ranking. Texas lost its points in this ranking on the unemployment rate factor. Officials in Austin know full well that Texas' economic engine is running on about half its cylinders. With that admission, how could DCI give Texas the No. 1 business climate nod?

NC is one of just four states in the South with losses in labor force since 9/11 with <--20,200>. That being the case, how can any source name them the No. 1 or No. 2 business climate and announce it this year? One negative business climate factor associated with Texas and North Carolina is the inordinate amount of manufacturing jobs in those two states. NC was one of only two states that didn't earn a point in any of the three categories. It's not all bad in Tar Heel country. The mass layoffs are slowing and recovery may be on the way.

It has been a tough year for West Virginia's unemployment rate. It was at 4.7 on 9/11 but has shot up almost a point since. That's where the state got hammered in this study, loosing seven points in that category alone. On the bright side, WV is retaining its industry with the lowest PMR mass layoff ranking in the South. That may seem contradictory, but job losses in WV are not of the mass layoff variety (more than 50). West Virginia leaders remain upbeat, however. That's half the problem solved.

The Show Me State led the nation in relative job losses from July 2001 to June of this year. Saw 491 mass layoffs this year, the South's fourth-highest PMR total. An inferiority complex has set in with state officials, much like that found in Arkansas just three years ago. Note to Missouri officials: Look at where Arkansas is now. We would have put them here three years ago.

Something alarming is occurring in Louisiana. Its labor force has dropped from 2.056 million to 2.009 million just since 9/11. Yet, Louisiana's unemployment rate is unchanged from 9/11, hovering around 6 percent. So where did all those folks go? Our researchers moved to Census to find out. Apparently those folks left the state, as evidenced by a negative 43,000 net internal migration. A negative net migration doesn't happen in the South.

BONUS RANKINGS

Missouri and Louisiana's business climates are a walk in the park compared to Michigan's business climate, the state Site Selection named the second-best business climate in the U.S. In the fall quarter, Michigan officials tried to shut down the Hyundai automotive assembly plant in Montgomery, Ala., before it could be built. Michigan has seen a .3 rise in unemployment since 9/11, a loss of 21,000 in its labor force and 1,362 mass layoffs. The mass layoffs figure leads all states in the South over the last year.

Our state business climate ranking indicates that Missouri and Louisiana, the two states at the bottom of the South's business climate ranking, beat California's business climate numbers by more than 50 points. Remember, our numbers are per capita based. A number not per capita based is the 7,417 mass layoffs in California since 9/11. That represents more than 33 percent of the nation's total of announced mass layoffs.

You can email Mike Randle regarding this article at mike@sb-d.com