United States / Industry Insights
Economic Clusters of Western and Southern United States
by Dmitry Diment, Rory Masterson and Darryle Ulama
Mar 31 2016

The population distribution of the United States has been changing over the past decade. Currently, population distribution is gravitating toward the western and southern regions, driven largely by immigration flows and the movement of young people. The US Census Bureau reports that between 2000 and 2010, the West and South grew 13.8% and 14.3% respectively, while the Midwest and Northeast grew just 3.9% and 3.2%. Florida overtook New York in 2014 to become the nation’s third-most populous state. By 2015, the 10 fastest-growing populations were in the South and West, with the exception of North Dakota. The growth of these regions, which contain several key swing states, will impact the political and economic fabric of the country going forward.

In light of the increasing importance of this population distribution, IBISWorld has provided economic profiles of the nation’s Southwestern, Southeastern and Western regions. Using the wealth of data from IBISWorld reports and the Statistics of US Businesses survey, we have highlighted major industry clusters as well as companies that base their operations in these areas.

West

While the West includes only Alaska, California, Hawaii, Nevada, Oregon and Washington, these six states encompass one of the largest territorial expanses in the United States. Alaska, located in the northwest extremity of North America, is nearly three times larger than the next closest state (Texas), with a total area of over 665,000 square miles. The region also includes the country’s most populous state, California, which boasts a population of 39.1 million and an economy with annual output of $2

.3 trillion. California dominates the region’s economic profile. The state is among the largest and most diverse economies in the world; its total economic output would make it among the 10 largest economies in the world if it were its own country.

Examined as whole, the economy of the West has produced new jobs at nearly twice the rate of the rest of the country. Alongside rapid population growth, California, Nevada, Oregon and Washington are experiencing flourishing healthcare and housing sectors, as well as expanding knowledge-based industries in advanced manufacturing, technology and finance. The region is also home to a number of industries that have historically played an outsized role in the global economy. One example of this is the San Francisco Bay Area, which since the 1990s has been the epicenter of the tech boom that altered the global economy and nurtured what are now some of the world’s largest companies, among them Apple and Google.

Nonetheless, the vast geographic spread of the West makes it challenging to summarize the economic activity of the region, particularly that of the noncontinental states. For example, the economy of Hawaii is oriented around a bustling Tourism industry, while Alaska is heavily dependent on oil and gas extraction.

Since the early 1900s, when motion-picture companies decamped for the West in an effort to escape stringent patent enforcement, the region, and Los Angeles in particular, has transformed into the de facto capital of entertainment. Today, the sheer agglomeration of associated industries and relevant companies has made the region a one-stop shop for all things entertainment. Government incentives have also worked to ensure that the region remains a hub for production. For example, the California Film and Television Tax Credit Program, passed in 2009, created a variety of financial incentives for companies to film within the state. IBISWorld expects that in 2016, the western region will house a combined 41.9% of total industry establishments in movie, video and television production. Other prominent entertainment industries based in the region include music production, with 31.9% of major-label and 28.9% of independent-label establishments located in the region. While Los Angeles has been the traditional home of entertainment, the importance of technological innovation has pushed many of entertainment’s upstart innovative companies, such as Netflix, Pandora and Pixar, to locate close to Silicon Valley.

Although the historic success of entertainment and the recent rise of high-tech industries in the West are well known, the region’s importance to manufacturing is typically underestimated. Because of its abundance of research centers, the long existence of a robust technology community and a highly skilled workforce, California is by far the largest location for aerospace and aviation companies. However, the state of Washington also plays an important role in the sector as the headquarters of Boeing’s manufacturing operations. Consequently, many suppliers have set up operations in the state and surrounding regions. A total of 27.0% of all establishments involved in the Aircraft, Engine and Parts Manufacturing industry are located in the West. Likewise, this region contains 35.6% of establishments in the Space Vehicles and Missiles Manufacturing industry, with California leading the way and accounting for a 31.1% share of industry establishments, which necessitate the use of the state’s numerous domestic spaceports, including the Ames Research Center, the Dryden Flight Research Center and the Jet Propulsion Laboratory.

Southeast

The Southeast encompasses the 12 states bound by West Virginia in the north and Louisiana and Arkansas in the west. Florida is the region’s most populous state, boasting over 20.3 million people, followed by Georgia (10.2 million) and North Carolina (10.0 million). Broadly speaking, the cohort’s economy has diversified into knowledge-based industries in advanced manufacturing, technology, finance and energy over the past three decades. The region is notable for its established transport network and energy infrastructure, as well as competitive rates for land and labor costs and an attractive business climate. However, the economic picture of the Southeast is difficult to generalize due to the heterogeneity of economic activity throughout the region. For example, the tourism sector is crucial to Florida and Georgia, while coal mining is mostly found in West Virginia and Kentucky. Unemployment rates among southeastern states are somewhat higher than the country’s average, particularly in Mississippi and West Virginia.

The automotive sector has blossomed in the southeastern states, driving investments and employment growth in many areas. Attractive government incentives, research hubs, and in certain cases, access to trade ports, have encouraged a number of automotive manufacturers to expand in states such as Alabama, Kentucky and the Carolinas. In 2015, Volvo Car Corp. announced its plans to invest $500.0 million in a factory in South Carolina; set to open in 2018, the facility could result in 4,000 jobs for the Palmetto State. Volvo is reported to receive more than $200.0 million in incentives from the state government and electric utility Santee Cooper, including $120.0 million in economic development bonds. Other major automakers in the region include Ford, which operates an assembly plant in Louisville, KY, and Nissan, which moved its US headquarters to Tennessee. In 2016, IBISWorld expects the Southeast region to house 22.8% of total industry establishments in car and automobile manufacturing, second only to the Great Lakes region, home of the Midwest factories.

Operators in the Tire ManufacturingAutomobile Engine and Parts Manufacturing and Brakes Manufacturing industries are also heavily concentrated in the Southeast. The region is home to 36.8% of the country’s tire manufacturing facilities, including the newly completed Yokohama Tire plant in West Point, MS and the Toyo Tire facility in Georgia.

Aerospace and aviation is another important cluster in the region; a number of NASA facilities, such the Kennedy Space Center in Florida and the Stennis Space Center in southern Mississippi, are located in the Southeast. IBISWorld estimates that the region is home to 20.9% of total space vehicle and missile manufacturing facilities in the country; one example is Lockheed Martin, a major player in the industry that operates aeronautics facilities in Mississippi, West Virginia, Florida and South Carolina. In aircraft, engine and parts manufacturing, the Southeast is home to 16.9% of the country’s total, second only to the West. In 2015, Boeing opened a $6.0-million technology and research facility in Huntsville, AL. Other operators in the region include Raytheon, Airbus and Embraer. Mobile, AL is home to the final assembly line of Airbus’ A320 jetliner; the facility, which began aircraft assembly only in July 2015, is the company’s first production site in the United States.

Southwest

The Southwest comprises Arizona, New Mexico, Oklahoma and Texas. By a considerable margin, the region’s largest state by geographic size and population is Texas, which contains over 27.0 million people. Traditionally, the region has relied on agriculture and mining industries, though recently its economic base has grown to include more varied industries such as aerospace manufacturing and financial services. Relatively low land and labor costs have contributed to business growth in the southwestern United States, allowing new industries to plant themselves alongside the traditional mainstays. For example, while the mining, quarrying and oil and gas extraction sectors have long been paramount to the economy in Texas, recent mergers and acquisitions have made Arizona an important state for the Domestic Airline industry. Unemployment rates are moderate-to-high in the Southwest. According to the Bureau of Labor Statistics, New Mexico and Arizona are among the states with the highest unemployment rates in the country.

The mining, quarrying and oil and gas extraction sector is one of the largest economic clusters in the region, spurring employment and wage growth in resource-rich areas. Large oil and natural gas reserves have allowed the Southwest to maintain its foothold in the sector. IBISWorld estimates that in 2016, the region will be responsible for 58.3% of oil and gas extraction establishments in the country, with Texas and Oklahoma contributing 40.6% and 15.2%, respectively. Companies such as Houston-based Halliburton and Oklahoma City-based Devon Energy Group, both of which have made major acquisitions in the last five years, generate several billion dollars in revenue each year. Oil and gas extraction also feeds into Petrochemical Manufacturing, another major industry in both Texas and Oklahoma.

Helping to shift the economic paradigm of the region, other industries have taken hold in the Southwest. For example, consumer lending has experienced a significant increase in the region, which now houses 20.8% of industry establishments, second only to the Southeast. Each southwestern state’s share of industry establishments exceeds their respective population’s share of the country’s total; for example, New Mexico’s share of consumer lending establishments is more than double its population share.