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Ranked: America’s Best States to Do Business In

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Ranked: America’s Best States to Do Business In

The United States often ranks as one of the best countries to start a business in, but the ease with which one can do business varies state by state. There are many considerations that factor into starting a business like the available workforce, the condition of local infrastructure, access to investors, a culture that’s open to business, and so on.

This map ranks America’s best states to do business in based on a study from CNBC which measured 88 factors across 10 broad categories.

Methodology

Here is a further breakdown of the weight given to each of the 10 categories:

states to do business in

The Most Business Friendly States

North Carolina—coming in first place in the ranking—attracts an extremely talented and innovative workforce, largely thanks to the state’s investment in its Research Triangle Regional Partnership (RTRP).

Overall RankState
#1North Carolina
#2Washington
#3Virginia
#4Colorado
#5Texas
#6Tennessee
#7Nebraska
#8Utah
#9Minnesota
#10Georgia
#11Florida
#12Iowa
#13North Dakota
#14Indiana
#15Ohio
#16Michigan
#17Pennsylvania
#18Oregon
#19Illinois
#20Idaho
#21Kansas
#22South Dakota
#23Wisconsin
#24Massachusetts
#25Missouri
#26Kentucky
#27Maryland
#28Delaware
#29California
#30Montana
#31Vermont
#32Wyoming
#33Alabama
#34Arizona
#35New Hampshire
#36New York
#36South Carolina
#38Oklahoma
#39Connecticut
#39Nevada
#41Arkansas
#42New Jersey
#43Maine
#44West Virginia
#45Rhode Island
#46Hawaii
#46New Mexico
#48Louisiana
#49Alaska
#50Mississippi

Notably, there are three ties in the ranking: New York and South Carolina had the same score, tying for 36th, Connecticut and Nevada tied for 39th, and Hawaii and New Mexico tied for 46th.

Other states ranking high on the list are Washington, Virginia, and Colorado. One of the newest individual metrics CNBC took into consideration was an openness to the cannabis industry, likely playing into Colorado’s move up from 8th to 4th compared to last year.

Some states that perhaps surprisingly don’t crack the top 10 include California and New York, both often considered centers of finance and entrepreneurship. But with the high costs of living and of starting a business in those states, their overall score is reduced.

A Look at the Scoring — North Carolina, California, and Nevada

To better understand how this ranking works we’ve broken down three different states and how they ranked in all 10 categories that gave them their overall spot. Here’s a brief look at their place in each category:

states to do business in

While North Carolina is the number one state to do business in and has an extremely strong economy, they are 26th when it comes to the Cost of Doing Business.

states to do business in

Whereas California ranks low overall, the state ranks first in terms of Technology and Innovation, as well as Access to Capital.

states to do business in

Although Nevada scored highly in the Infrastructure and Business Friendliness categories, the state scored poorly in Technology and Innovation, and was dead last in the Education category.

Doing Business in America

New business applications have actually decreased 4% this year in comparison to the same timeframe in 2021.

Here’s a look at new business applications by region as of July 2022:

  • Northeast: 63,058
  • Midwest: 70,827
  • South: 197,663
  • West: 94,150

New business applications in July were the highest in the retail trade industry, numbering around 69,000 new applications, according to the U.S. Census Bureau. Applications for professional service businesses were the second highest at 53,000, followed closely by construction businesses at 43,000.

Here’s a closer look at the industry breakdown:

IndustryNumber of Applications
Retail Trade68,974
Professional Services53,321
Construction43,442
Other Services 38,605
Transportation and Warehousing 34,952
Administrative and Support 31,602
Health Care and Social Assistance 25,725
Accommodation and Food Services 24,166
Real Estate23,953
Finance and Insurance18,890
Arts and Entertainment12,684
Unclassified12,350
Wholesale Trade8,893
Information7,802
Educational Services 5,762
Manufacturing5,744
Management of Companies 4,166
Agriculture3,703
Mining542
Utilities421

A potential looming recession, alongside rising interest rates and inflation, may be creating a sense of cautiousness among businesspeople, leading to the lower rate of business applications compared to last year. And, at existing companies, the economic situation has lead to cuts in growth forecasts and subsequently, major layoffs.

But overall, the U.S. is a country which values entrepreneurship—even during the pandemic, massive spikes in new business formations were recorded—and certain industries and states will continue to flourish in any business environment.

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Markets

What History Reveals About Interest Rate Cuts

How have previous cycles of interest rate cuts in the U.S. impacted the economy and financial markets?

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Line chart showing the depth and duration of previous cycles of interest rate cuts.

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The following content is sponsored by New York Life Investments

What History Reveals About Interest Rate Cuts

The Federal Reserve has overseen seven cycles of interest rate cuts, averaging 26 months and 6.35 percentage points (ppts) each.

We’ve partnered with New York Life Investments to examine the impact of interest rate cut cycles on the economy and on the performance of financial assets in the U.S. to help keep investors informed. 

A Brief History of Interest Rate Cuts

Interest rates are a powerful tool that the central bank can use to spur economic activity. 

Typically, when the economy experiences a slowdown or a recession, the Federal Reserve will respond by cutting interest rates. As a result, each of the previous seven rate cut cycles—shown in the table below—occurred during or around U.S. recessions, according to data from the Federal Reserve. 

Interest Rate Cut CycleMagnitude (ppts)
July 2019–April 2020-2.4
July 2007–December 2008-5.1
November 2000–July 2003-5.5
May 1989–December 1992-6.9
August 1984–October 1986-5.8
July 1981–February 1983-10.5
July 1974–January 1977-8.3
Average-6.4

Source: Federal Reserve 07/03/2024

Understanding past economic and financial impacts of interest rate cuts can help investors prepare for future monetary policy changes.

The Economic Response: Inflation

During past cycles, data from the Federal Reserve, shows that, on average, the inflation rate continued to decline throughout (-3.4 percentage points), largely due to the lagged effects of a slower economy that normally precedes interest rate declines. 

CycleStart to end change (ppts)End to one year later (ppts)
July 2019–April 2020-1.5+3.8
July 2007–December 2008-2.3+2.6
November 2000–July 2003-1.3+0.9
May 1989–December 1992-2.5-0.2
August 1984–October 1986-2.8+3.1
July 1981–February 1983-7.3+1.1
July 1974–January 1977-6.3+1.6
Average-3.4+1.9

Source: Federal Reserve 07/03/2024. Based on the effective federal funds rate. Calculations are based on the previous four rate cut cycles (2019-2020, 2007-2008, 2000-2003, 1989-1992, 1984-1986, 1981-1983, 1974-1977).

However, inflation played catch-up and rose by +1.9 percentage points one year after the final rate cut. With lower interest rates, consumers were incentivized to spend more and save less, which led to an uptick in the price of goods and services in six of the past seven cycles. 

The Economic Response: Real Consumer Spending Growth

Real consumer spending growth, as measured by the Bureau of Economic Analysis, typically reacted to rate cuts more quickly. 

On average, consumption growth rose slightly during the rate cut periods (+0.3 percentage points) and that increase accelerated one year later (+1.7 percentage points). 

CycleStart to end (ppts)End to one year later (ppts)
July 2019–April 2020-9.6+15.3
July 2007–December 2008-4.6+3.1
November 2000–July 2003+0.8-2.5
May 1989–December 1992+3.0-1.3
August 1984–October 1986+1.6-2.7
July 1981–February 1983+7.2-0.7
July 1974–January 1977+3.9+0.9
Average+0.3+1.7

Source: BEA 07/03/2024. Quarterly data. Consumer spending growth is based on the percent change from the preceding quarter in real personal consumption expenditures, seasonally adjusted at annual rates. Percent changes at annual rates were then used to calculate the change in growth over rate cut cycles. Data from the last full quarter before the date in question was used for calculations. Calculations are based on the previous four rate cut cycles (2019-2020, 2007-2008, 2000-2003, 1989-1992, 1984-1986, 1981-1983, 1974-1977).

The COVID-19 pandemic and the Global Financial Crisis were outliers. Spending continued to fall during the rate cut cycles but picked up one year later.

The Investment Response: Stocks, Bonds, and Real Estate

Historically, the trend in financial asset performance differed between stocks, bonds, and real estate both during and after interest rate declines.

Stocks and real estate posted negative returns during the cutting phases, with stocks taking the bigger hit. Conversely, bonds, a traditional safe haven, gained ground. 

AssetDuring (%)1 Quarter After (%)2 Quarters After (%)4 Quarters After (%)
Stocks-6.0+18.2+19.4+23.9
Bonds+6.3+15.3+15.1+10.9
Real Estate-4.8+25.5+15.6+25.5

Source: Yahoo Finance, Federal Reserve, NAREIT 09/04/2024. The S&P 500 total return index was used to track performance of stocks. The ICE Corporate Bonds total return index was used to track the performance of bonds. The NAREIT All Equity REITs total return index was used to track the performance of real estate. Calculations are based on the previous four rate cut cycles (2019-2020, 2007-2008, 2000-2003, 1989-1992). It is not possible to invest directly in an index. Past performance is not indicative of future results. Index definitions can be found at the end of this piece.

However, in the quarters preceding the last rate cut, all three assets increased in value. One year later, real estate had the highest average performance, followed closely by stocks, with bonds coming in third.

What’s Next for Interest Rates

In March 2024, the Federal Reserve released its Summary of Economic Projections outlining its expectation that U.S. interest rates will fall steadily in 2024 and beyond.

YearRange (%)Median (%)
Current5.25-5.505.375
20244.50-4.754.625
20253.75-4.03.875
20263.00-3.253.125
Longer run2.50-2.752.625

Source: Federal Reserve 20/03/2024

Though the timing of interest rate cuts is uncertain, being armed with the knowledge of their impact on the economy and financial markets can provide valuable insight to investors. 

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