Special Report

Best American Cities for Business

As the economy struggles to gain traction, American cities also are hard at work to keep current businesses as well as bring in new ones. According to a report by consulting firm KPMG, some cities are better positioned to attract the headquarters, factories and office space of America’s businesses. 24/7 Wall St. examined the 10 most competitive cities to find out what makes them so attractive. What it generally boils down to is how cheap these cities are for businesses.

Interestingly, the most competitive cities — the least expensive ones for businesses — tend to have the lowest economic production among the cities covered in the report. While, for the most part, the least competitive cities — because they are most expensive — are also the cities with the highest gross domestic product.

But perhaps this is not surprising. The cities with the lowest GDPs work hard at attracting businesses by creating favorable conditions such as lower taxes. At the same time, the less favorable economic conditions naturally depress such cost factors as wages and real estate.

KPMG’s report examined 26 different cost components that can affect the cost of running a business, such as taxes, labor costs, leasing prices and utilities. It also looked at 30 non-cost-related factors, including crime rates and the presence of nearby universities. The report looked at the 27 largest metropolitan statistical areas in the country, measuring these expenses across 19 different major industries. The cities that performed the best had the highest scores of the 19 industries.

Of the cities that ranked the highest in competitiveness, the primary driver varied. In the case of Orlando, Tampa and Phoenix, low labor costs were the main cause for their high score. In the case of Baltimore, Cincinnati, Atlanta and Pittsburgh, low taxes were among the primary drivers. Dallas and St. Louis had among the lowest utilities costs.

Low labor costs appear to be related to a number of factors, but generally, a weak labor market, smaller industry and high unemployment appear to keep wages and other costs down. Tampa, which has the lowest labor costs of any major U.S. city, according to the report, had an unemployment rate of 9.9% in January, 2011 — one of the highest rates in the country. Orlando, which had the second-lowest labor costs, had an unemployment rate of 9.5%.

While most of these cities performed well in the overall rank because of a high level of competitiveness in certain types of cost, sometimes these costs varied substantially for each industry.

For example, Atlanta had the second-lowest overall costs in the country in 10 of the 19 different industries, including metals, plastics, and medical devices. However, the metropolitan region ranked only 11th best in product testing, and 13th best in biotech. These industries cost more because facilities costs were higher in these areas.

In order to review the 10 most competitive cities for business in the United States, 24/7 Wall St. examined the competitiveness ranks of the 27 American cities studied in KPMG’s Competitive Alternatives report. We reviewed the 10 cities that received the best overall cost scores. In addition to KPMG’s cost components, 24/7 examined current unemployment rates, provided by the Bureau of Labor Statistics; GDP, provided by the Bureau of Economic Analysis; median income, provided by the U.S. Census Bureau; and employment decline during the recession and projected recovery, both provided by IHS Global Insight.

These are the best American cities for business.

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