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September 2005
Doing Business Relatively Well
By John Paul Galles

In the midst of national economic activity that has brought the unemployment rate down to 5.0 percent and our federal deficit declining by nearly $100 billion dollars – despite the War in Iraq, rampant pork barrel spending by Congress, and oil prices exceeding $67 per barrel – it is interesting to note how our own state’s economic activity has kept pace.

Despite the substantial downturn in the textile industry and our general manufacturing slump, North Carolina’s economy continues to make notable progress. In 2004, according to the U.S. Bureau of Economic Analysis, strong U.S. real economic growth was widespread; real Gross State Product (GSP) grew in all 50 states. (GSP is considered the most comprehensive measure of overall economic activity in a state.)

For North Carolina, GSP has steadily increased over the last five years, in 2004 growing by 4.0 percent. The financial services and information-communications-technology sectors were the largest contributors to this growth. Nationally, that GSP increase places North Carolina 29th on the list.

The recently released Milken Institute’s annual ranking of states using its Cost-of-Doing-Business Index provides another perspective on North Carolina’s economic activity. The index takes into account each state’s average annual wage per employee in all industries (weighted 50 percent), the annual state tax revenue as a share of personal income (weighted 20 percent), the cost of commercial and industrial electricity (weighted 15 percent), the cost of renting industrial space (weighted 10 percent), and the cost of renting office space (weighted 5 percent), and compares them to the national average. An index score of 100 means that the state’s cost is equal to the U.S. average in that particular category.

The 2005 data conclude that Hawaii, New York and Massachusetts are the most expensive states in the nation in which to conduct business. Hawaii has business costs that are 43 percent higher than the national average. New York is in second place with costs that are 30 percent higher, and third-place Massachusetts has costs that are 25 percent greater than the U.S. average. Rounding out the top five are California with costs that are 24 percent greater and Connecticut is fifth with costs that are 22 percent greater.

At the bottom of the rankings are South Dakota (50th) with costs that are 28 percent lower than the national average; North Dakota, 49th (23 percent lower); Iowa, 48th (19 percent lower); Montana, 47th (19 percent lower); and Idaho, 46th (16 percent lower).

North Carolina ranks 30th in the nation with a cost-of-doing-business index of 91.6; Georgia ranks 31 with an index only slightly lower; South Carolina is listed 44th with an index of 84.2; and Virginia ranks 24th with an index of 94.7.

In terms of the five factors contributing to the index, North Carolina’s wage costs are rated at 33.18, below the national average of 37.154; the tax burden on business is rated at 66.4, above the national average of 61.4; electricity costs are at 5.72, below the national average of 6.56; office space is at 17.6, below the national average of 19.0; and industrial space is at 3.7, below the national average of 4.8. More specific data can be found at www.milkeninstitute.org.

Business costs in North Carolina are 8.4 percent lower than the national average. South Carolina business costs are 15.8 percent below the national average. North Carolina’s Cost-of-Doing-Business Index itself is down from its ranking of 27th on the list last year.

As our region continues to compete to attract new and expanding businesses, the continuing vitality of the North Carolina economy despite the substantial restructuring of its industry sectors, as well as the relatively favorably ranked costs of doing business, augur well for continued growth.

Factoring in the intangibles – housing, transportation, finance, education, health care, environment, location, and quality of life – this region stands out as an excellent place for attracting new and expanding businesses.

 

John Paul Galles is the publisher of Greater Charlotte Biz.
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