Industry observers, economics scholars, and seasoned business professionals agree on three key indicators of a locally healthy economy. They are:
- Level of growth among an aggregate of local businesses.
- Local residential commercial and residential real estate status.
- General economic strength indicators, such as job growth, unemployment rate, business start-up activity, quality of local schools/universities, quality of healthcare services, and more.
Defining a Local Economy
When looking at economic conditions at a local level, what is the size of the area under consideration? That can be parsed in several ways. Studying a local economy can focus on just one city, the city plus its county, a multi-county area, or an entire region of the state.
A local economy can also mean the economy of an entire state. Let’s take an example of a U.S. state that economists identify as among the most robust and successful examples of a statewide economy, North Carolina.
Consider These Metrics for North Carolina:
- North Carolina boasts the #1 largest manufacturing workforce in the southeast region of the United States.
- North Carolina universities are consistently producing highly qualified talent – more than 29,000 STEM degrees are awarded here annually. STEM stands for Science, Technology, Engineering, and Math. STEM itself has become something of its own economic indicator for social researchers.
- North Carolina has received significant media attention for its robust business environment. For example, CNBC rated The Tar Heel as “No. 1 for Business” in a 2022 report. Site Selection Magazine places NC in the Top 5 of 50 states. The Tax Foundation lists the state as among the “10 Best” for business-friendly taxation policies.
Diversification an Important Factor
The adage, “Don’t place all your eggs in one basket” points to a key indicator of local economic strength. That indicator is a highly diversified economy that is supporting dozens of different industries in a variety of sectors.
An array of companies doing a lot of different things means that the local economy is not dependent on just one, two, or three market segments.
For example, agriculture comprises a huge segment of certain regional economies and even some statewide economies. But when markets go south, floods and/or droughts wreak havoc, or international trade policies throw a monkey wrench into global commodity markets, the result can be tough times for a local economy on all levels.
However, if that same agricultural area maintains a significant manufacturing presence, well-positioned educational institutions, an element of technology-driven commerce, and more, this economic diversity can help combat even the most severe agricultural downturn.
Pillars of Competitiveness
The World Economic Forum has developed what it calls its Global Competitive Index (GCI). It’s a tool to measure the economic competitiveness of a country. The same or very similar facets of the GCI can also be applied with some adjustments to measure local economies.
Economists define competitiveness as: “a set of policies, institutions, and key factors that identify the level of productivity of a region.” That, in turn, “defines the level of prosperity that a local economy can achieve.”
So, the primary “pillars of competitiveness” are defined as:
- Macroeconomic environment
- Health and primary education
- Higher education and/or training
- Market efficiency for goods
Keep in mind that a local economy does not exist in a vacuum. All regions compete to a certain extent. It’s also true that individual U.S. states often compete heavily with one another. For example, states like North Carolina, Florida, and Texas compete aggressively by leveraging tax policies to lure corporations seeking to establish new factories, headquarters, and other assets in new locations. The bottom line is that a measurement of local economic health is heavily tied to its ability to compete across a variety of metrics.
Assessing the health of a local economy is not only an academic and scientific exercise but also a remaining matter of what seems like good old “common sense.” As for the latter, most people don’t need a Ph.D. in economics to recognize a vibrant, bustling urban area or a safe, clean residential neighborhood. Most people can quickly recognize where they would like to live, raise a family, and enjoy the prosperity of a robust local economy.