Why the US economy is moving South and what it means for entrepreneurs

by Zain Jaffer

A late June 2023 report in Bloomberg stated that US GDP is starting to shift to the South. It terms it as the “New new South.” Although it is the move of Tesla from California to Texas that gets a lot of buzz, many other companies are building their factories and even moving their headquarters to many states in the South.[1]

These companies bring with them jobs, suppliers and construction opportunities. Families will move along with their breadwinners, and homes will be built, rented and sold in these new communities.

Entrepreneurs and investors should take heed, if they are chasing where the growth is for the next few years, especially if business prospects in the areas where you normally operate seem unpromising.

According to Bloomberg, six fast-growing states in the South — Florida, Texas, Georgia, the Carolinas and Tennessee — are now adding more to the US GDP than the Northeast, with its Washington-New York-Boston corridor, in government figures going back to the 1990s.[1]

The US Census Bureau, in a May 2023 update, said that nine of the fastest growing US cities are in the South. However, New York City, Los Angeles, and Chicago still remain the most populated cities in the US. California still has the largest number of houses (14.6 million), followed by Texas (12.1 million) and Florida (10.3 million), while Wyoming (277,116) and Alaska (329,285) had the least number. Of the nine fastest-growing cities in the South, six were in Texas.[2]

For years now, the U.S. population has been moving slowly towards the South and Southwest. With that migration comes money and economic activity. [2] From the real estate point of view, several hard-hitting developments have further fueled the growth trend away from megacities.

One is that the large cities now have an increased perception of crime in their downtown areas, particularly with their defunded police forces. Perception because although stats may have lowered, the perception of the public is that the criminal activity has worsened. Take for example the brazen shoplifting done by many youth gangs that are no longer stopped by retail store managers. In fact, some employees of Lululemon were fired after they tried to stop some shoplifters.[3]

There may have been valid reasons for defunding the police, such as racist and illegal police tactics in some major cities. However, the defunding has also resulted in increased street crime incidents.

The cities used to be havens of glamor with their bustling skyscrapers, bright lights, and glittering retail shopping window displays. Unfortunately many of those office skyscrapers are now empty because people now prefer to work from home or wherever they can get a wifi signal and a good cup of coffee, and the glamorous retail stores have left because their downtown districts are now mostly empty not just during the weekends but also what are supposed to be busy workdays.

The dream of many to own plush city condominiums has been diminished by street crimes, drug use, and graffiti in many downtown areas. Instead of happy family memories of children at play in big backyards in the suburbs, they need to contend with the violence and squalor these days in the big cities.

Another reason is the increased emphasis on ESG (Environment Social and Governance) policies that are driving away those companies who simply want to do business without too many restrictions. For example, New York City wood and coal fired pizzerias are now being required to cut their emissions for ESG reasons, and many of these old world businesses would rather move elsewhere.[4] Aside from making their businesses more complicated, it also makes doing business more expensive in cities like San Francisco, Los Angeles, and New York, which are already expensive to begin with.

Many families also want to live in areas that are more conservative than what is being pushed. For example, a new law in California would make it possible for minors to undergo sex change and hormone therapy procedures without permission from their parents.[5] Many parents and young families do not want that kind of policy foisted on them. Plus the weather down South, although subject to strong heat waves, tornadoes, and other natural threats, have nice comfortable climates.

Then there are the tax incentives being dangled by these states that want to create employment and attract industry. These incentives could make the difference between not making a profit or making a slight profit, versus making a large profit. The people in smaller towns and cities are also hungry for work and are not distracted by other concerns such as excessive politics and other sociological issues.

The major cities along the coasts have historically been the centers of culture, business, and technology innovation. But recent developments, due in large part to their own policies, are threatening to shift more economic and business activity to more conservative and lower cost areas, such as the South.

So, although megacities have long offered a trove of opportunities for entrepreneurs and investors, those opportunities are now shifting elsewhere. Entrepreneurs who can adapt and capitalize on this trend will have the most to gain.

SOURCES: https://www.bloomberg.com/news/features/2023-06-29/millions-move-to-the-south-as-us-economy-favors-its-wealth-job-opportunities