Best & Worst States For Business 2023: Where The Boom Lives On

The Lehigh Valley is one of America’s oldest enclaves of Western civilization, a 40-by-20-mile dale set snugly in the mountains of eastern Pennsylvania. It was overtaken by German settlers in the early 1700s, resisted quickly in the Revolutionary War, supplied key regiments for the defense of the nation’s capital during the Civil War and became an important steelmaking center in the transformation of the United States into the world’s industrial powerhouse.

Then the area sank in the 1980s as an unfortunate symbol of the decline of American manufacturing. One steel mill after another closed; textile and garment makers left for China; tens of thousands of jobs were lost; and ultimately the Valley’s iconic company, Bethlehem Steel, went bankrupt in 2001.

Fast forward two decades, however, and the Lehigh Valley has again become an economic pacesetter for the nation. While not nearly matching its industrial output of a century ago, the Rust Belt region around Allentown is tapping into many of the big new trends funneling corporate investment flows from around the world into places like the Lehigh Valley.

So coveted are the area’s manufacturing workers, for instance, that Andy Fryer recently bumped starting wages up to $23 an hour from $18 at Easy Signs’ 72,000-square-foot plant. “That completely changed things,” says the cofounder of the Sydney, Australia-based sign maker that opened its first U.S. plant last year. “We have referrals coming to us now and plenty of people to choose from.”

While Pennsylvania as a whole ranks only No. 33 in the 2023 Chief Executive Best & Worst States for Business survey of CEOs, the Keystone State did rise two spots from a year earlier. And the economic vibrance displayed in pockets such as the Lehigh Valley—even amid a recessionary mindset that has slowly overtaken U.S. companies—underscores the dynamism that remains in state business climates in general.

Texas again places No. 1 this year, as it has annually in the survey since its inception. Florida ranked No. 2 again, extending its own string but also putting unprecedented pressure on Texas for the top spot. Tennessee once again is ranked No. 3 in state business climate by CEOs. North Carolina, at No. 4, and No. 5 Arizona flipped spots this year. No. 6 Indiana is a mainstay as well.

Just as CEOs have solidified opinions about the welcoming top states, their assessment of the worst has ossified: No. 47 New Jersey, No. 48 Illinois, No. 49 New York and No. 50 California remain the same as in the 2022 survey.

But in between, there are some significant advances in this year’s ranking, especially the rise of Georgia and South Carolina, each up four spots to No. 7 and No. 8 in the Chief Executive list. They’ve joined Florida in the broad advance of the Southeast, especially as a new manufacturing hub.

Other notable rises include Virginia, which moved up two spots to No. 12, and Idaho, which advanced two spots to No. 14. Kentucky moved up five spots, to No. 18. Meanwhile, Ohio dropped by four slots to No. 11, and South Dakota fell by a remarkable six spots to No. 15.

Domestic Dominance

Broadly speaking, the trends dictating how states are performing as economic actors these days extend beyond CEO opinion to include foreign companies’ increasing embrace of the U.S. market; reshoring and a renaissance in domestic manufacturing; the leveraging of state coffers flush from recent federal largess through tax cuts and other means (see “Taxing Matters,” p. 46); the rising value of experienced labor, along with the expansion of automation; and the pandemic-era migration from city cores to exurbs and beyond.

Absorbing the lessons of the supply chain debacles during Covid and the blows dealt to them by the new geopolitics, many companies abroad are gazing at the U.S. with new appreciation. “If you’re a Western European company, there are lots of challenges in many big markets across the globe, including Ukraine, Russia and China,” says Jean-Claude Dubacher, CEO of B. Braun of America, a unit of the Germany-headquartered maker of medical supplies with a plant in Lehigh Valley. “So the U.S. is the market. It’s also clear that if you want to be successful here, you need to go big.”

Stephanie Yarbrough, who leads the economic development team at transatlantic law firm Womble Bond Dickinson, is coping with the trend. “The number of companies looking in the U.S. for the first time or opening large U.S. facilities is unbelievable, based on prior years,” she says. “They’re saying, ‘We need to build where we need to be supplying.’ They would have gone to Mexico, but we’re seeing that all come home to the U.S. now.”

South Carolina and Georgia have been taking advantage all along, as much as any state. Volkswagen, for instance, keeps boosting its intentions for manufacturing of EVs and batteries in North America and is eyeing the Columbia, South Carolina, area for plant sites with enthusiasm.

“South Carolina offers probably the most favorable environment of any state for us, in terms of the working environment, any support package and its location in terms of our factory in Chattanooga” and one in Puebla, Mexico, says Reinhard Fischer, head of strategy for Volkswagen North America.

A VW investment in South Carolina would add to the automotive-manufacturing heft of the state, which already hosts assembly plants owned by Volvo and Mercedes, while Georgia is home to a major Kia factory and the announced site of a $5 billion investment planned by EV-truck maker Rivian.

The Human Factor

Labor availability is key, says David Ginn, president and CEO of the regional economic-development alliance for Charleston, South Carolina. “We have a net of about 30 people a day moving to this market, most of them in the prime demographic,” he notes. “Plus we have thousands of military people around here who are retiring and discharging from the military and are available.”

Georgia has been notably “aggressive in messaging to recruit people from the coasts,” says Larry Gigerich, managing director of the Ginovus economic-development consultancy and incoming chairman of the U.S. Site Selectors Guild. “They have been promoting Atlanta and other markets as attractive and diverse places rich in culture.”

The map of economic might and opportunity continues to shift across the country as well. More inland states are getting looks by workers as Silicon Valley continues to fold in on itself in some ways, with hundreds of thousands of layoffs of tech workers, as the funk at Amazon has resulted in stoppage of construction of its vaunted HQ2 in Virginia, and as the foundations of Big Tech finance shake with the demise of Silicon Valley Bank.

Indiana is stepping up. For example, its pioneering program of “place making” has seen the state legislature approve $500 million of expenditures to help cities and counties make themselves more appealing economically and in lifestyle terms—through partnerships to create more affordable housing, for instance.

“We’ve become more on the roadmap for people who want to do remote work or really just want a change of pace,” says Brad Chambers, Indiana’s commerce secretary. “People don’t want to be in the Northeast or on the West Coast; they want a good quality of life and place to live and great employment prospects at the same time.”

Meanwhile, Indiana and the rest of the industrial Midwest continue to rally around their new favored position as the home of the burgeoning electric-vehicle and chip-manufacturing industries. Stellantis, for instance, recently chose Indiana for the site for a joint EV-battery plant with Samsung SDI of Korea.

“Ultimately, we chose Indiana [because it] offered a large site that would allow for further expansion and the ability to colocate suppliers,” says Mark Stewart, chief operating officer of Stellantis, the French-owned automaker with a long history of production in the Upper Midwest. “We also have a significant existing footprint in Kokomo, so the state understands the skills and capabilities of the workforce in the area as well as the regulatory environment.”

And while the high cost basis of Illinois helped lead to Stellantis’s decision to close its ancient assembly plant in Belvidere, the strength of another of the state’s legacy businesses—life sciences—has helped the Chicago area land a commitment of $250 million from Facebook founder Mark Zuckerberg to establish a new biotech hub in the city.

Accelerating Entrepreneurship

Meanwhile, Pittsburgh keeps building on its burgeoning role as an international center of robotics development and manufacturing, including driverless vehicles, which stemmed from research at its Carnegie-Mellon University—and local leaders’ ability to construct a tech cluster around it. “It’s been a purposeful effort by leaders… which has really helped attract a lot of capital and created an entrepreneurial ecosystem,” says Joel Reed, president of the Pittsburgh Robotics Network.

Across the state, the Lehigh Valley is humming as well. Manufacturing has returned to its legacy status as the No. 1 sector for output regionally, at an annual clip in 2021 of $8.4 billion from about 750 different companies. The Valley has only about a 3 percent vacancy rate for industrial space. Other modern industries are right behind in job growth, including healthcare. As one result, mean wages rose to an average of $25.76 in 2021 from $23.22 just two years earlier.

The fact that the Valley never was a huge office center has turned out to benefit it post-Covid. So has an influx of young people out of New York City, Philadelphia and north New Jersey. Residential housing is tight, and rents have skyrocketed, including for apartments in downtown Allentown in some repurposed industrial buildings.

The area also has become the top growth market in the state for people 40 and under. Lehigh Valley gained a net of nearly 1,800 people in 2021 who were moving from other counties, the most new migration in a one-year span in at least a decade, according to the U.S. Census.

An influx of foreign companies is creating much of the opportunity. “We have definitely seen the acceleration of both internationally based and domestic companies here that want to have more supply close to large population centers, whether it’s a production facility or a distribution facility where you don’t get caught with such a short supply,” says Don Cunningham, chief of the Lehigh Valley economic-development authority.

B. Braun, for instance, has invested more than $200 million in its local manufacturing complex over the past few years, part of its overall $1 billion in U.S. investments over that period. It produces plastic medical components and devices and pursued a 310,00-square-foot expansion in August.

“It’s sort of in the middle of everything with all the distribution centers here and access to the East Coast, which makes it a great place to invest,” Dubacher says. “And there’s a bit of a life sciences ecosystem, and great universities and community colleges. This is where we’re going to grow.”

Read more Best & Worst States:

The big question: Would the Sunshine State’s running battle with Disney impact its reputation among business leaders? The answer: It doesn’t seem so—as Florida and Texas top this year’s list.

Indiana’s lifestyle initiative. Commerce Secretary Chambers focuses on developing industries of the future and on giving many locales the tools.

The new global center of robotics? Pittsburgh takes off the Rust Belt to emerge as a place where the demise of a driverless-car startup simply leads to more startups.

Complete Coverage: Best & Worst States for Business 2023 >