Local Economic Report

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1 EDB Economic Development Board economy Local Economic Report Winter 29 E c o n o m i c D e v e l o p m e n t B o a r d 4 1 C o l l e g e Av e n u e S u i t e D S a n ta R o s a C A

29 Winter Local Economic Report January 29 The Economic Development Board (EDB), in partnership with the Workforce Investment Board, is pleased to bring you the 29 Winter Local Economic Report.

2 29 Winter Local Economic Report January 29 The Economic Development Board (EDB), in partnership with the Workforce Investment Board, is pleased to bring you the 29 Winter Local Economic Report. Highlights from this Local Economic Report include: Total employment in stagnated in 28 but is expected to increase after 29. In November 28 employment grew year-over in Information and Professional & Business Services. Housing prices continue to fall, although the local market is expected to continue to rebalance during 29. Affordability has increased at a faster pace than in neighboring Napa County. economic conditions may improve in 21, bolstered by a more balanced housing market, investment spending that supports technology-producing industries and increased spending on higher-end wine and tourism. Thank you for your continued interest in the EDB s reports. As always, if you have any questions, please feel free to contact us at (77) Sincerely, Ben Stone Executive Director 29 Economic Development Board. The Economic Development Board (EDB) believes all data contained within this report to be accurate and the most current available, but the EDB does not guarantee that this report is accurate or complete.

3 SONOMA COUNTY EMPLOYMENT GROWTH RANK Best=1 STRENGTHS & WEAKNESSES STRENGTHS Improving demographic trends. Household wealth supports credit quality. Housing supply approaching equilibrium with demand. Affordability is improving. CURRENT EMPLOYMENT TRENDS SHORT TERM Worst= rd quintile nd quintile RISKS LONG TERM LIFE CYCLE PHASE Mature/Decline VITALITY 297 4th quintile Best=1 COST OF DOING BUSINESS = 1% 19% COST OF LIVING = 1% November 28 Employment Growth RISK-ADJUSTED RETURN, 7-12 Worst=381 WEAKNESSES House prices are still correcting; affordability remains poor. Basic industries stable but still not contributing to growth. -.33% UPSIDE Gas prices remain low, freeing up disposable personal income. Venture capital, broad Bay Area growth, and local policy initiatives spark technology industries. DOWNSIDE Severe recession further limits domestic leisure and business travel. Higher energy prices put a severe limit on domestic visitor arrivals. Relative Employment Performance (1993=1) Indicators Gross Metro Product, C$B % Change Total Employment () % Change Unemployment Rate Personal Income Growth Population () ,717 1,35 1,53 1,342 1,598 1, Single-Family Permits ,552 1, , Multifamily Permits Existing Home Price ($Ths) ,71 11,857 17,77 11,619 12,695 1,41 7,541 Mortgage Originations ($Mil) 4,738 3,919 3,76 3,483 3, Net Migration () ,183 1,223 1,3 1,267 1, Personal Bankruptcies 1,12 1,294 1,851 1,773 1,41 Total Construction Manufacturing Trade Trans/Utilities Information Financial Activities Prof & Business Svcs Edu & Health Svcs Leisure & Hospitality Other Services Government % change year ago, 3 mo. MA % DataBuffet MSA code: MSON Recent Performance. s economy is contracting and will weaken in 29. Employment has been falling since midyear and the unemployment rate has risen to a 15-year high. To its benefit, much of the weakness remains in construction and manufacturing, but a large part of the economy is at a standstill. As a result, tax revenue is faltering at all levels, resulting in local payroll cutbacks since late summer. House prices continue to fall, reducing household wealth and maintaining stress on consumer credit conditions. Technology. Tech-producing industries remain a driving force for the economy with the potential to lift s economy out of recession in the coming year. Medtronic s medical devices developed locally are gaining market share, and resurrected biotech company TriVascular is expanding its stent graft R&D work. More importantly, new avenues of R&D and investment are emerging for solar and geothermal power and other green industries. Risks abound, however, as energy prices remain volatile and investment spending is uncertain in the near term. Bay Area venture capital placements in industrial and energy ventures have surged this past year; biotech and medtech are holding steady. Nationwide, however, business investment spending on equipment and software has fallen since the fourth quarter of 27 and could weaken considerably further, adding downside risk to the outlook that is darkened by widespread cost-cutting. For example, 3M will close its Petaluma optical manufacturing plant in 29, laying off 1 workers. Tourism. s hospitality industry will succumb to the recession in 29. Growth of tourism-related spending slowed in 28 and will continue to do so into 29; one indicator is falling air passenger arrivals in the Bay Area in 28. Leisure and hospitality employment will fall at least through the middle of 29 as discretionary spending on wine and ANALYSIS on visits to wineries, spas and resorts is limited. In addition, long-term expansion of gaming may be hampered by the industry s nationwide slowdown, although the ongoing expansion of the River Rock Casino remains on track. Horizon Air s direct service to Airport offers further upside potential in 29 and beyond. Housing. The housing market will continue to rebalance in 29. House prices are still falling and the median sales price is down by over 35% from its peak in 25. Foreclosure sales have increased to more than half of all sales, driving down prices, especially at the lower end of the market. Falling prices and a paucity of new construction, however, have improved affordability this year and have helped to clear inventory of homes for sale. While housing affordability has improved relative to some Bay Area metros, affordability has increased faster in neighboring Napa and Solano counties. Credit conditions remain weak, with delinquencies as a percent of all home loans more than double their rate at the beginning of 27. Some improvements for loans 9 and 12 days delinquent were recorded in the third quarter of 28. However, rising unemployment will increase the number of distressed mortgages and foreclosures in 29. The recession in is expected to last through the third quarter of 29, and subsequent sluggish growth will allow the jobless rate to rise into early 21. Thereafter, conditions will improve, with the potential for a recovery in the early years of the coming decade to exceed national trends. Such conditions include vastly improved housing affordability and a renewed supply-demand balance that bolster the housing market, a rebound in investment spending that supports techproducing industries, and improved income growth nationwide that rejuvenates demand for higher-end wine and supports tourism. Eduardo J. Martinez December 28 Moody s Economy.com help@economy.com Précis METRO December SAA SON Forecast

4 TOP EMPLOYERS Kaiser Permanente 2,3 St. Joseph Health System 2,166 Agilent Technologies 1,4 Medtronic CardioVascular 1,2 Sutter Medical Center of Santa Rosa 1,97 Safeway, Inc. 1,82 Amy's Kitchen 95 Kendall-Jackson Wine Estates 92 Home Depot 7 Hansel Auto Group 681 Lucky 677 River Rock Casino 651 JDS Uniphase Corporation 65 Wal-Mart Stores, Inc. 65 AT&T California 597 Mary's Pizza Shack 575 Washington Mutual 56 Wells Fargo 512 Korbel 52 Pacific Gas and Electric Company 5 Source: North Bay Business Journal -, February 28 Public Federal... 1,99 State... 5,217 Local... 23, EMPLOYMENT & INDUSTRY INDUSTRIAL DIVERSITY EMPLOYMENT VOLATILITY DUE TO FLUCTUATIONS 1% 8% 6% 4% 2% % Not due to 84% Most Diverse () Least Diverse Due to.48 RELATIVE TO 18 SAA SON 1 Into MIGRATION FLOWS Number of Migrants San Francisco, CA 2,552 Oakland, CA 921 Sacramento, CA 719 Los Angeles, CA 54 Napa, CA 45 Vallejo, CA 446 San Jose, CA 38 San Diego, CA 364 Riverside, CA 196 Santa Ana, CA 192 Total Inmigration 12,794 From San Francisco, CA 1,837 Sacramento, CA 1,59 Oakland, CA 966 San Jose, CA 482 Napa, CA 433 Vallejo, CA 385 Los Angeles, CA 384 San Diego, CA 348 Phoenix, AZ 297 Portland, OR 274 Total Outmigration 14,98 Net Migration -2,186 Sector Construction Manufacturing Durable Nondurable Transportation/Utilities Wholesale Trade Retail Trade Information Financial Activities Prof. and Bus. Services Educ. and Health Services Leisure and Hosp. Services Other Services Government COMPARATIVE EMPLOYMENT AND INCOME % of Total Employment Average Annual Earnings SON CA US SON CA US Sources: Percent of total employment - Moody s Economy.com & BLS, 27; Average annual earnings - BEA, HOUSE PRICES Source: FHFA, 1987Q1= 1, NSA MOODY S RATING SON SAA CREDIT QUALITY County 7.6% 5.9% 5.5% 11.7% 9.6% 1.1% 48.% 63.4% 63.5% 52.% 36.6% 36.5% 2.4% 3.3% 3.7% 4.1% 4.7% 4.4% 12.6% 11.1% 11.3% 1.6% 3.1% 2.2% 4.9% 6.% 6.% 12.1% 14.9% 13.1% 12.4% 11.% 13.3% 1.9% 1.2% 9.8% 3.3% 3.4% 4.% 16.3% 16.5% 16.1% Aa2 $63,814 $63,26 $47,439 $69,831 $83,24 $7,956 nd $91,355 $71,424 nd $68,295 $7,69 nd $73,316 $58,157 $62,361 $7,192 $67,687 $32,684 $34,478 $27,715 $6,749 $1,37 $82,715 $39,411 $54,274 $53,19 $45,837 $6,888 $54,2 $47,846 $48,849 $42,114 $19,242 $25,31 $2,625 $25,514 $25,926 $23,87 $59,115 $67,36 $57,889 LEADING INDUSTRIES NAICS Industry Employees () GVSL State & Local Government Full-Service Restaurants Beverage Manufacturing General Medical and Surgical Hospitals 6.2 FR Farms Limited-Service Eating Places Grocery Stores Account., Tax Prep., Bkkeep. & Payroll Srvcs Traveler Accommodation Services to Buildings and Dwellings Building Finishing Contractors Employment Services Department Stores Residential Building Construction Building Equipment Contractors 2.8 High-tech employment 9.1 As % of total employment 4.5 Sources: BLS, Moody s Economy.com, 27 Sources: IRS (top), 26; Census Bureau, 27 PER CAPITA INCOME SON SAA CA Source: Bureau of Economic Analysis, 26 Moody s Economy.com help@economy.com Précis METRO December , -1,5-2, -2,5-3, -3,5 43,318 Net Migration, SON SAA Domestic -3,84-5,247-5,114-2,553 Foreign 2,81 2,86 2,171 2,136 Total -1,723-3,161-2, ,626 36,714

5 Graphical Analysis s Economy Continues to Contract Employment Growth Has Stopped Index of coincident indicators Jan 25=1 California Source: Moody's Economy.com California -.5 Payroll employment, % change year ago, 3 mo. MA As Key Industries Slow Office Construction Remains at Modest Levels 12 8 Payroll employment, % change year ago, 3 mo. MA Professional services 8 6 Office-using employment % change year ago, 3 mo. MA (L) 25 4 Leisure and hospitality Manufacturing -2 Office construction permits $ mil, 12 mo. moving sum (R) Source: CIRB Falling Prices Are Reducing Inventory of Homes for Sale Home Affordability Has Not Improved Relative to All Local Areas 4 35 Median existing house price % change year ago (R) Source: Moody's Economy.com housing affordability as % of same in San Francisco-Oakland Excess supply, single-family housing, months (L) San Jose Vallejo 8 7 Napa Moody s Economy.com help@economy.com Précis METRO December

6 5 Year Forecasts Gross Metro Product, Percent Growth Personal Income Growth 5% 4% 3% 2% 1% % -1% '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 8% 7% 6% 5% 4% 3% 2% 1% % '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 Total Employment, Percent Growth Mortgage Originations ($Mil) 3.5% 3.% 2.5% 2.% 1.5% 1.%.5%.% -.5% -1.% -1.5% -2.% -2.5% '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 $2 $15 $1 $5 $ '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 Net Migration (Thousands) Personal Bankruptcies '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 4

7 EDB Economic Development Board With Acknowledgment and Appreciation to Local Key Businesses Supporting Economic Development: Chairman s circle: Underwriters: County of Sonoma General Services, Real Estate Division County of Sonoma Board of Supervisors Permit & Resources Management Health Services Transportation & Public Works

Local Economic Report

EDB Economic Development Board economy Local Economic Report Fall 28 E c o n o m i c D e v e l o p m e n t B o a r d 4 1 C o l l e g e Av e n u e S u i t e D S a n ta R o s a C A 9 5 4 1 7 7. 5 6 5. 7