Over the past 60 years, financial services’ share of the economy has exploded from 2.5% to 8.5% of GDP. Even if you believe, as we do, that financialization is not a healthy trend, the sector boasts a high number of relatively well-paid jobs that most cities would welcome.
Yet our list of the fastest-growing finance economies is a surprising one that includes many “second-tier” cities that most would not associate with banking. To identify the cities making the biggest gains, we ranked metropolitan statistical areas’ employment growth in the sector over the long-term (2001-12), mid-term (2007-12) and the last two years, as well as momentum.
Tops on our list among the 66 largest metro areas is Richmond, Va., where financial sector employment has grown an impressive 12% since 2009. This reflects the presence of large banks such as Capital One Financial , the area’s largest private employer with 10,900 jobs, and SunTrust Banks , which employs 4,400. The insurer Genworth Financial is based in Richmond, and Wells Fargo and Bank of America also have sizable operations there. Along with the Northern Virginia metropolitan statistical area (an area encompassing the state’s suburbs of Washington, D.C., including Fairfax, Arlington, Loudoun and Prince William counties), which is No. 7 on our list, the Old Dominion is quietly becoming a major financial power.
In once-gritty Pittsburgh, which places second on our list, financial services is now the largest contributor to the regional GDP, according to the Allegheny Conference. Long seen as a backwater, the area has begun to lure the kind of highly trained workers used by financial firms, leading Rust Belt analyst Jim Russell to joke, “Pittsburgh is becoming the new Portland.” Financial employment there has grown nearly 7% since 2009. The strongly reviving local economy spans everything from energy to medical technology.
Like Pittsburgh, some of the areas doing well in financial services are also thriving generally. These include such Texas high-fliers as No. 3 Ft. Worth-Arlington, where financial services employment has expanded over 12% since 2007, as well as No. 4 San Antonio-New Braunfels. And it is not real estate that is driving this boom—in Fort Worth, for example, the “real estate and rental and leasing” sub-sector of financial services shed jobs over the last five years while the “finance and insurance” subsector expanded almost 20%.
Some metro areas that aren’t exactly setting the world on fire are scoring in the financial job sweepstakes. Jacksonville, Fla., ranks fifth on our list and St. Louis, MO-IL ranks eighth. In St. Louis, financial sector employment is up 6.4% since 2007 by our count, and the number of securities industry jobs has increased 85% to 12,000 over that span, according to the Wall Street Journal.
What’s Driving Dispersion of Financial Services?
The largest traditional financial centers appear to be losing their edge. New York, home to by far the largest banking sector with 436,000 jobs, places a meager 52nd on our list of the cities winning the most new jobs in the sector. Big money may still be minted in Gotham, but jobs are not. Since 2007 financial employment in the Big Apple is down 7.4%.
The next four biggest financial centers are also doing poorly. San Francisco-San Mateo ranks 37th – remarkably poor given that San Francisco placed first overall on our 2013 list of The Best Cities For Jobs. Meanwhile Boston-Cambridge-Quincy ranks 44th (despite notching a strong 17th place ranking on our overall list), Los Angeles-Long Beach is 47th, and Chicago-Joliet-Naperville is 57th.
So what gives here? A key factor is cost-cutting. As firms look to move back office and some sales functions to less expensive locales, the traditional financial centers are losing out. Between 2007 and 2012, New York, Boston, Los Angeles, Chicago and San Francisco lost a combined 40,000 finance jobs.
In addition to lower rents in the cities that rank highly on our list, workers come cheaper, too: the average annual salary for securities industry jobs in St. Louis is $102,000, according to the Wall Street Journal, compared with $343,000 in New York.
This trend is not just limited to the high-profile investment banks and brokerages. Insurance, the quieter and tamer part of the financial services sector (it has roughly the same number of jobs today as it did in 2001 and 2007), has seen an exodus of jobs into these lower-cost regional markets as well. Illinois-based insurance giant State Farm, for example, recently signed mega-leases in Dallas, Phoenix and Atlanta.
Manufacturing And Energy Drive Changes
The manufacturing revival in the Rust Belt and the Midwest is creating financial sector jobs in midsized cities (those with overall employment totaling 150,000 to 450,000). Tops on that list is Ann Arbor, Mich., followed by Green Bay, Wisc., No. 16 Grand-Rapids-Wyoming, Mich., and No. 19 Madison, Wisc. Among small cities, Owensboro, Ky., ranks first, followed by No. 3 Kankakee-Bradley, Ill., No. 5 Clarksville, Tenn.-Ky., No. 11 Bloomington-Normal, Ill., and No. 13 Michigan City-La Porte, Ind. With low commercial and industrial market costs and available workforces, these regions could prove attractive to manufacturers re-shoring U.S. operations.
The top of the financial services rankings for midsized and small cities is also liberally sprinkled with places where hot energy economies are driving employment in all sectors. The midsized list features Bakersfield-Delano, Calif., in third place, the Texas towns of El Paso and McAllen-Edinburg-Mission in fifth and ninth place, respectively, and No. 10 Lafayette, La. Our small cities ranking includes the Texas towns of Odessa (2nd), Midland (fourth) and Sherman-Denison (10th), and Cheyenne, Wyo. (14th). More economic activity will continue to flow to these regions both as they grow and as their suppliers move closer to reduce costs.
What The Future Holds
Historically financial services clustered in big cities, but increasingly cost is leading financial institutions to focus on smaller metropolitan areas. With the connectivity of the Internet and growth of educated workforces in many smaller metros, it has become increasingly possible for financial firms to locate many key functions outside of the traditional money centers.
Some places can boast advantages beyond just lower costs. Jacksonville, and Miami-Kendall (No. 13 on our big cities list) benefit from the huge demand for financial advisers in Florida. The Sunshine State ranks fourth in the number of financial advisors, and this seems likely to grow as at least some of the expanding ranks of down-shifting boomers — some with decent nest eggs– head down south to retire or start second careers. This demographic trend could also benefit Phoenix, which already hosts substantial operations of Bank of America, JPMorgan Chase and Wells Fargo.
Perhaps no low-cost metro area has greater long-term advantages than Salt Lake City, 12th on our list. The unique linguistics skills of the largely Mormon workforce have attracted big financial firms such as Goldman Sachs, who need people capable of conversing in Lithuanian, Chinese or Tagalog. Salt Lake City, with 1,400 employees, is the investment bank’s sixth largest location in the world.
“We consider Salt Lake a high leverage location,” notes Goldman managing director David W. Lang. “There’s a huge cost differential and you have a huge talent-rich environment.”
As we saw in manufacturing and information sectors, the financial services industry appears to be undergoing a profound geographic shift. Once identified largely with such storied locales as Wall Street, Chicago’s LaSalle Street or San Francisco’s Montgomery, the financial sector — like much of the economy — is dispersing, perhaps even more rapidly. Over time, this could accelerate the process of economic decentralization that has been occurring, fairly steadily, for the better part of a half century.
Joel Kotkin is executive editor of NewGeography.com and a distinguished presidential fellow in urban futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.
Michael Shires, Ph.D. is a professor at Pepperdine University School of Public Policy.
This piece originally appeared at Forbes.com.
Downtown Richmond photo by CoredesatChikai.