Bridgeport, Connecticut Moves into Top Five Ranking of Most Expensive U.S. Metros for Doing Business, IHS Markit Says
Honolulu retains ranking as costliest city to do business, Morristown, TN most affordable
Business costs in Honolulu, San Jose, San Francisco, Bridgeport, CT and New York City all exceed the national average by more than 25 percent, according to the 2018 Business Cost Index from IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions. Conversely, business costs in the cheapest areas, including Morristown, TN, Beckley, WV, and Valdosta, GA, are more than 15 percent lower than the U.S. average.
The Business Cost Index (BCI) shows that more expensive metros are generally clustered around the East and West Coasts; these metropolitan areas tend to have higher than average wages, high energy costs and high real estate costs due to high population density and land constraints. The less-expensive metros tend to be in the Midwest and South, where lower than average wages and greater availability of land help decrease business costs for firms.
While there are clear regional trends when it comes to costs, there can still be a large degree of variability within a region or even within a state, according to the index. Laredo, McAllen, and Brownsville, Texas, have costs among the lowest in the country, while Houston has costs above the U.S. average. There are large cost differences between San Jose and Bakersfield, California; Springfield and St. Louis, Missouri and Spartanburg and Charleston, South Carolina. Population densities and industry structure can differ widely within a state, driving these intra-state business cost discrepancies.
“Business costs are not the only determinant of business location decisions; labor quality and availability, conglomeration of firms/industries, proximity to markets, state/local incentives and lifestyle factors all play a role,” said Karl Kuykendall, principal economist, U.S. regional economics at IHS Markit. “We find that the lowest-cost metros are not necessarily the fastest growing, and vice versa. Nevertheless, business costs are an important consideration for firms, and thus we would expect hiring in costly areas to be mostly at the end of the market where superior worker productivity can offset the high costs. Among the 50 largest metros many of the fastest growing have costs near or below the U.S. average, showing the advantage of being a large market without a premium price tag. However, there are high cost metros, especially in California, where growth has been very strong despite its costs.”
Fastest growing large metros (ranking among 50 largest):
Avg. ann. rate
Costs relative to US, %
Riverside-San Bernardino, CA
San Jose, CA
Las Vegas, NV
San Francisco-Oakland-Hayward, CA
Dallas-Fort Worth-Arlington, TX
San Antonio, TX
The top 10 most expensive metros for conducting business:
BCI (100 = U.S. Avg.)
Urban Honolulu, HI
San Jose-Sunnyvale-Santa Clara, CA
San Francisco-Oakland-Hayward, CA (MSA)
New York-Newark-Jersey City, NY-NJ-PA (MSA)
Santa Cruz-Watsonville, CA
Washington-Arlington-Alexandria, DC-VA-MD-WV (MSA)
San Diego-Carlsbad, CA
Los Angeles-Long Beach-Anaheim, CA (MSA)
The top 10 most affordable metros for conducting business:
BCI (100 = U.S. Avg.)
The BCI summarizes businesses’ major costs which vary across the country: labor (including wages, unemployment insurance, and health insurance), energy, real estate, and business taxes and ranks all 381 metropolitan statistical areas (MSAs) in the U.S.
A score above 100 indicates the metro is more expensive for business than the country overall, while a score below 100 means the metro is less expensive. For example, a score of 125 means the metro's cost of doing business is 25 percent higher than the national average.
About IHS Markit (www.ihsmarkit.com)
IHS Markit (Nasdaq: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions.
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