Each year, Capgemini publishes the U.S. Metro Wealth Index, which ranks the number of high-net-worth individuals living within the ten largest metropolitan statistical areas. According to the report, high-net-worth Individuals “are defined as those having investable assets of $1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.”
Since the last report, the number of millionaires has increased by 7.3 percent, following a gain of 17.5 percent in 2009, which came after a steep drop in 2008. Despite the rosy state of America’s rich, the same cannot be said for the residents of the cities these millionaires call home. A review of the local economies of these cities demonstrates that the fortunes of the rich don’t depend on how their neighbors do.
Unemployment remains a significant issue for the country. Half of the cities on this list have unemployment rates above the national average of 9.1 percent. San Jose, San Francisco and Chicago are over 9.3 percent. Los Angeles and Detroit are both over 11 percent.
Housing markets in most of these cities present an even starker contrast. Eight of the ten markets on the list were flat or decreased in value. While Boston, Philadelphia and New York dropped less than 5 percent, in Chicago, Detroit and San Francisco housing dropped in excess of 10 percent.
Despite moribund local economies, millionaires in all of these cities increased in number, in some cases significantly. Houston had 88,200 millionaires in 2009. In one year, the number of millionaires grew 9.6 percent to 96,700. This followed an impressive gain in the prior year, when the number of millionaires in the city grew nearly 30 percent. The number of millionaires in other cities on the list also grew significantly between 2008 and 2009, and less the following year. San Jose’s millionaire population increased by 24.5 percent in the first period and only 2.7 percent in the most recent. These initial recoveries have as much to do with the drops in wealth in 2007 as anything else.
While there is a clear disconnect between the fates between the cities’ millionaires and their average residents, the reasons why the wealthy became wealthier seem to be the same. In all of the cities on the list industry recovered. In New York and Chicago, finance prevailed. In Houston, energy powered the economy. In San Jose, it was tech. And although gains were seen, in sales and stock price, the fortunes of average workers have remained constant and in some places become worse.
To provide perspective on the local economies on the Cap Gemini’s list, 24/7 Wall St. used Zillow’s real estate database for the yearly change in home value for each metropolitan statistical area in June 2011. We also included the most recent unemployment data for each area. Finally, we reviewed the Fortune 500 list to identify the largest publicly traded companies that are headquartered in those cities.
These are the American Cities with the Most Millionaires.
San Jose suffered as much as any large metro area during the recession, with the exception of Detroit, when the tech industry went through a horrendous downturn in business activity. Orders for hardware products, software, and the services offered by firms like EDS and HP fell sharply. Both businesses and individuals cut back tech spending. That tide has only just begun to change as online firms like Facebook and the smartphone business provided the tech sector with new sales.
It is a surprise that Detroit has a single millionaire, let alone over 90,000. Both the car industry and the large number of companies that supported it with parts, technology and components like tires all suffered as sales fell. GM and Chrysler went into bankruptcy. But the industry has begun an unexpected renaissance. GM and Ford are routinely the top two manufacturers of cars sold in the U.S. Each has cut costs enough to insure profitability. Michigan has offered tax incentives to bring new industries to the Detroit area, helping it become a modest center for small tech firms.
Houston’s millionaire population rose almost 10% between 2009 and last year — the highest among the ten largest cities. The oil and energy industries dominate the city’s business activity. The value of oil companies has soared along with profits. Crude traded for just over $50 a barrel at the beginning of 2009. Recently, that figure was close to $100. Houston is also headquarters to a number of companies that service the energy industry, the largest of which is Halliburton. This entire sector has rebounded along with the prices of oil and natural gas.
Boston’s economic foundations are education, health services and the financial industry. A number of the largest banks and investment companies in the U.S. are there. Many of these are huge and privately held like Fidelity Investments, which has 40,000 workers. The hospital and higher education sectors rely significantly on endowments. The value of those was hurt badly. Harvard’s endowment value dropped 22% in one four-month period in 2008. It has taken all of the last two years to get even a modest portion of that back.
Philadelphia’s services business was probably not hurt as badly as large industries such as automotive, tech and energy that are more common in other regions. The city is still a modest-sized financial center, but among the largest employers are “recession resistant” businesses like cable TV and enterprise services companies like Aramark. The city’s unemployment rate has been consistently below the national average.
The San Francisco economy suffered a double blow during the recession. Its large tech industries were hurt by a drop in demand for software and internet services. Its largest banks laid off thousands of people as the mortgage-backed securities collapse spread through the financial services sector. The local economy was hurt so badly the home market has still not recovered, nor has the construction businesses that it supported.
Many residents of Washington were fortunate during the recession because the federal government and military did not make major workforce cuts. That is likely to change in the future due to austerity programs. The one portion of the government which was badly damaged economically was the federally-supported home loan underwriters Fannie Mae and Freddie Mac. Each is now is essentially bankrupt — victims of the housing market slide.
Chicago is one of the few large cities that do not rely heavily on one or two industries for its fiscal health. A Moody’s report published seven years ago said that Chicago had the most diverse economy of any large U.S. city. The city’s futures and options trading industries were not hurt badly by the financial crisis because the need to trade securities remained. Two of the largest companies in Chicago are food services giants McDonald’s and Kraft, which weathered the downturn well, as did medical services giants Baxter and Abbott.
Los Angeles also has a diversified business base. Entertainment is one of the region’s largest employers, but so are the education, healthcare and energy industries. LA is home to one of the most active ports in the world. The city is also a center of the defense industry which was damaged very little by the recession because of America’s military needs abroad.
New York’s fortunes rise and fall with the financial services industry. Citigroup, JPMorgan, AIG, Morgan Stanley and Goldman Sachs are headquartered there. So were large bankrupt firms Bear Stearns and Lehman Bros., which fired the majority of their employees at the start of the credit crisis. The wound to NYC was not just the number of people who lost jobs. Many of those jobs paid well, which made them engines of the regional economy. The financial services industry has made a modest recovery in the last year-and-a-half. A recent drop in financial activity by individual and companies along with the persistence of bad bank loans means the turnaround is incomplete
Ashley C. Allen and Douglas A. McIntyre