Commerce Lexington Research Update

We had a ranking doubleheader this week as Parenting Magazine unveiled its Best Cities for Families 2010 rankings. Lexington was named #5 overall and Parenting had this to say:

Among the many reasons families love Lexington are its 5,821 acres of parks, pools, and playgrounds, the low crime rate, and a stable real estate market. This city, considered the world capital of racehorse breeding, had the top score in our Home Value Loss ranking. This means that of all the cities surveyed, fewer homes here (just 6.65 percent) sold at a loss than in any other city. Lexington also has fewer registered sex offenders than more than three quarters of the cities surveyed.

Along with its #5 overall ranking, Lexington was also ranked as the #2 Best City for Education. Parenting Magazine said:

With its an excellent pupil/teacher ratio (13.8:1) and high reading scores, Lexington, is a city with education as a top priority.

You can read more about their rankings HERE

The fine folks at www.gobankingrates.com recently rated Lexington as the #8 Best Large City to Bank In. Using data based on the number of local banks available in a 50-mile radius and a polling of the most recent deposit interest rates, including savings, checking, CD and money market accounts, gobankingrates.com selected a top ten best places to bank for both large and small cities.

What gave Lexington the #8 ranking? According to gobankingrates.com: “because of its high 1.3% APY average interest rate on deposit accounts. Lexington also has a great variety of banks to choose from with 12 local banks in the area.”

In case you weren’t reachable by Commerce Lexington last Thursday or were on vacation, like I was, a new ranking for Lexington was announced by Forbes.com for the Best Places for Business and Careers. Press release excerpt as follows:

Lexington, Kentucky has been named the 9th Best Place for Business and Careers among the 200 largest metro areas by Forbes. The metrics included costs (business and living), job growth (past and projected), income growth, educational attainment and projected economic growth, as well as quality of life issues like crime, cultural and recreational opportunities as well as net migration patterns, and finally the percentage of subprime mortgages handed out over a three-year stretch and the number of highly ranked four-year colleges in the area.

VIEW THE FULL RANKINGS LIST HERE

LEXINGTON’S METRICS PAGE

People love rankings, and we here at Commerce Lexington are no exception. It isn’t every day that Lexington is rated more highly than everyone’s favorite go-to model city, Austin, TX. I’ll admit to just a little bit of pride in that regard. Austin, TX has a lot going for it and a lot of great people and businesses as well that contribute to its reputation. Unfortunately, the grass is often greener on the other side, and those of us in Lexington tend to forget that we have a lot going for us as well – not in the least our fantastic people and businesses.

I know that rankings can be a cause for joy and also skepticism. Lexington has racked up its fair share of rankings in the short time I’ve been Research Director. Some of these rankings are more than a little eyebrow raising (Best Metros to Test New Products anyone?), but in general, what they sometimes lack in statistical rigor, they often make up for in free publicity and chances to reflect positively on how great Lexington truly is.

Speaking of statistical rigor, I’ll formally introduce the research portion of the ranking story. A little history: Lexington was rated the #5 Best Place for Business and Careers by Forbes in 2008. Lexington was also rated the #33 Best Place for Business and Careers by Forbes in 2009. So how does Lexington go from #5 down to #33, back up to #9? Forbes doesn’t publish the recipe to their ranking secret sauce on the website, but they do give us a bit of insight on what makes up the overall ranking:

I’ve highlighted a couple boxes in green because I think they provide the most insight as to what happened from 2008 to 2010. We’ll get to that in a second. First, I noticed that Forbes has been changing their formula slightly, adding two new categories in 2009, Job Growth Projected and Subprime Mortgages. We did well in the Subprime Mortgage category, not well at all in the Job Growth Projected category. Our poor rank in projected job growth (one of the green boxes) and a poorer than average score in the Income Growth category (the other green box) are probably the key factors that dragged our overall rank down in 2009.
Forbes also added a new category in 2010, Economic Growth Projected. We didn’t do as well in this category either, which probably kept us out of the top five. You’ll notice that our income growth and projected job growth rebounded quite nicely, especially the projected job growth. So how does Lexington go from #151 to #32 in the course of a year?

The answer (in my humble opinion) is the “Projected” in Job Growth Projected. To quote a famous economist, “The only function of economic forecasting is to make astrology look respectable.” Our metro region sustained some heavy job losses in a few critical areas in late 2008 and early 2009, most memorably in the automotive supplier industry. I think the uncertainty of the mounting recession along with the uncertainty of the automotive industry made job growth projections more than a bit daunting. As you can tell, however they projected the job growth for our metro region, they took the worst case scenario.

A year later, albeit with high unemployment, Lexington never truly saw the sky fall. In fact, in a lot of instances, we are a metro region that is poised for growth in the recovery phase of the economy due to our diversity of industry, the presence of the University of Kentucky, and our highly educated population (among many other attributes).

It is certainly difficult to predict what next year will bring, but my core belief is that the things that make Lexington great will continue to shine through for years to come, no matter what ranking we get from Forbes or anyone else.

Must have been a good week for sixes. Immediately after it’s #6 ranking among the best mid-size cities to start a small business, Lexington followed up with another #6. This time, it is the #6 best place to raise a family. Children’s Health magazine used a comprehensive statistical analysis to rank cities on more than 30 factors that parents deem vitally important, including crime and safety, education, economics, housing, cultural attractions, and health. The top cities were the ones that best complemented family life.

Pretty easy sell, isn’t it? Great place to start a business, then raise a family.

At Commerce Lexington, we are no stranger to people asking how Lexington compares to other cities. Cities can be compared on many different attributes, from their size to demographics, economics to culture. These questions probably won’t go away any time soon, but we do have some tools at our disposal to help get some answers.

Because every city is different, some criteria had to be established on which cities would be included. Rather than use a definite criteria, such as population, we chose the cities that are picked yearly for Commerce Lexington’s Leadership Visit. Each of the cities contain some attributes that Lexington aspires to have and most of them also contain some common thread with Lexington, such as being a college town. Going back 20 years, there were 19 different cities at our disposal (CLX visited Austin twice). Of the group, only one, Greenville, SC couldn’t be included. The technical boundary of Greenville city is actually pretty small, only about 55,000 people live there, 5,000 people short of the threshold the US Census Bureau uses for being included in yearly updates. That left 18 Leadership Visit cities plus Lexington, so we included Pittsburgh, the site of next year’s Leadership Visit to make an even group of 20.

The next hurdle was picking out the criteria to rate each city on. we settled on three commonly available measures that could be found from a single source: the US Government. Often, city governments, chambers of commerce, and economic development organizations use numbers in marketing materials. More often than not, the way these numbers are assembled varies greatly from place to place. For instance, some organizations only report the jobs they had a hand in attracting (such as Commerce Lexington), while others report the entirety of jobs created in a certain area (such as Opportunity Austin). Neither of these approaches is any more correct than another, but it makes it extremely difficult to compare apples to apples. By using a single source, we can be assured that the differences between the cities will not simply be differences in reporting methods.

The three measures we chose to use are: population growth, employment growth, and median household income growth. These are three high-level measures that should give some good indication as to the differences between the cities. Note that we calculated the Compound Annual Growth Rate (CAGR) for each city over a consistent time period. Calculating the total growth over a time period (e.g., 10% overall from 2000 to 2007) really only tells you about that specific time period. Whereas calculating the CAGR will give us a sense of what is happening on a yearly basis for each of the cities.

Without further ado, the results of our research:

Lexington and Leadership Cities: A Comparison

Lexington and Leadership Cities: Data Table

*Note that no adjustments were made to income figures to account for cost of living differences in different cities. As of now, there are no reliable sources that calculate these differences for the entire population of the size cities included in this research. The closest, ACCRA, measures the cost of living in most of our target cities, however, their index is specifically designed to measure a certain segment of the population. Their target is the top 20% of young professional earners. Attempting to adjust a measure of an entire population (i.e., median household income) with an index derived from much smaller and non-representative subset (i.e. ACCRA) doesn’t pass statistical muster.

America’s Best Affordable Places to Retire

Lexington recently added a new distinction courtesy of BusinessWeek. As the #9 Best Affordable Place to Retire in America, Lexington was noted as having “low property taxes and cost of living” as well as “dozens of major companies, the University of Kentucky, and horse farms. It enjoys a diverse economy with a mix of agriculture, government, health care, and education.”

You can find all of Lexington’s best rankings and distinctions HERE.