Best-Performing Cities
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Summary for 2016

Which factors determine the divergence in economic performance of metropolitan areas? Why are some thriving while others stall or decline? The Milken Institute's Best-Performing Cities index provides an objective benchmark for examining the underlying factors and identifying unique characteristics of economic growth in metropolitan areas. Our index uses a fact-based set of metrics such as job creation, wage gains and technology developments to evaluate relative growth. While national and international patterns affect near-term performance, and to some extent are beyond a region's control, the top-performing metros have cohesive strategies that distinguish them from others. They offer important lessons that may be adaptable for other localities.

Here are highlights of the 2016 rankings:

Changes in U.S. macroeconomic growth patterns and international developments are exerting a significant influence on metropolitan areas' economic fortunes. However, metros with competitive advantages in professional and technical services are experiencing the most robust advances. This includes a broad array of technology services sectors, such as scientific research and development; architecture and engineering; computer systems design and related services; specialized design; and technical consulting. Metros with a high concentration of these tech services and strong climates for entrepreneurship are among the leaders in our 2016 Best-Performing Cities report.

A key weakness around the nation has been the sustained collapse in oil prices, which has caused a massive retrenchment in shale oil exploration and overall drilling investment. Regions that experienced a burst of economic growth from 2010 through 2014 amid high oil prices and shale oil exploration have seen a dramatic deceleration, with several experiencing employment declines. Even Houston, the top oil and gas cluster in the nation, while not a site of shale-related exploration, has experienced a significant economic slowdown because of the energy industry's high interdependence.

Fortunately, there are several countervailing sources of strength for the U.S. economy, among them accelerating housing and consumer markets. This growth is partly the result of declining gasoline prices, low interest rates, strong job gains and better wage growth. The housing market has experienced the most pronounced improvement over the past year. Stronger job and wage gains, continued low mortgage rates and slower home price appreciation are aiding affordability. Housing starts are at the highest sustained level since October 2007, just prior to the financial crisis. Recent data confirm that the underlying trend is improving. Many Florida metros that were devastated by the housing foreclosure crisis are experiencing an upturn, driven in part by a recovery in new home construction.

Consumers began to exercise the additional discretionary purchasing power afforded by lower gasoline prices in the second quarter of 2015. For the year, real consumption spending rose 3.2 percent, the highest advance in the recovery. Consumer durable spending has been growing about 5.5 percent on a sustained basis over the last 18 months. Much of that growth was attributable to light-vehicle sales hitting their highest levels since before the Great Recession as pent-up demand from postponed purchases was released. Metropolitan areas with large automotive production operations have benefited. Consumer spending on services has been advancing at a stronger pace as well. Travel and tourism spending and a variety of other discretionary services are seeing better gains, supporting economic activity in many metros.

Other recent sources of weakness include the strong dollar, which has restrained growth in exports and caused a substitution of foreign-produced goods and services for domestic good. Further, an economic slowdown in China and related weakness in commodity markets has harmed many American producers of construction equipment and capital goods. Non-energy-related business investment in equipment and structures has been restrained by a slowdown in manufacturing output and weak corporate profit growth. Financial services have witnessed cutbacks in headcount and bonuses.

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View Top 10 Large Cities Slideshow
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View Top 10 Small Cities Slideshow

U.S. Interactive Map
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