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1 EDB Economic Development Board economy Local Economic Report Fall 9 E c o n o m i c D e v e l o p m e n t B o a r d 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

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

3 9 Fall Local Economic Report October 9 The Economic Development Board (EDB), in partnership with the Workforce Investment Board, is pleased to bring you the 9 Fall Local Economic Report. Our research partner, Moody s Economy.com, provided much of the research for this report. Highlights from this Local Economic Report include: s wine-producing industries face a challenging outlook through the end of this year. Layoffs at metro-area wineries continued through the middle of 9 in response to falling revenues for high-priced wine. The falling number of visitors to the metro area has limited the near-term outlook for tourism. Employment in the entertainment, leisure and hospitality industries is projected to fall by 9% from its 8 peak through the middle of next year nearly twice the rate for both California and the The beginning of the expected recovery in business and personal travel in 1 will help to revive the county s tourismrelated industries. economic conditions will improve, with a stronger recovery in the early years of the coming decade than is expected nationally. Such conditions include vastly improved housing affordability and a renewed supply-demand balance that bolsters the housing market, a rebound in investment spending that supports tech-producing industries, and improved income growth nationwide that rejuvenates demand for higher-end wine and supports 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 9 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.

4 SONOMA COUNTY EMPLOYMENT GROWTH RANK Best=1 Worst= th quintile th quintile CURRENT EMPLOYMENT TRENDS July 9 Employment Growth 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 Best=1 LIFE CYCLE PHASE Growth/Mature VITALITY 97 th quintile COST OF DOING BUSINESS = 1% = 1% COST OF LIVING % 1% -5.6 Worst=381. Relative Employment Performance (199=1) Forecast Indicators Gross metro product (C$B) % change Total employment () % change Unemployment rate Personal income growth Population () ,35 1,53 1,3 1,598 1, Single-family permits ,535 1, , Multifamily permits Existing-home price ($ths) ,857 17,77 11,619 1,695 1,1 7,51,5 Mortgage originations ($mil),88,511 1,85 1,95, Net migration () ,3 1,3 1,67 1, ,53 Personal bankruptcies,31 3,5 3,395 3,88,75 STRENGTHS & WEAKNESSES STRENGTHS Improving demographic trends. Household wealth supports relative credit quality strength. Housing supply approaching equilibrium with demand. Affordability is improving. WEAKNESSES Mortgage delinquencies are rising, increasing the pipeline of foreclosures. Basic industries generally are not contributing to growth. RISKS SHORT LONG RISK-ADJUSTED TERM TERM RETURN, % UPSIDE Improving tech outlook increases demand for IT-producing industries in Sonoma. House prices reach bottom in 9 earlier than projected. DOWNSIDE Extended recession further limits domestic leisure and business travel. Higher energy prices put a severe limit on domestic visitor arrivals. Recent Performance. Weak consumer spending is keeping the econ omy in recession. The unemployment rate has remained above the average since the end of last year, but it is almost percentage points below the California rate. The county has lost 9% of its jobs since 6 over percentage points more than the Winerelated and technology manufacturing indus tries have been the largest contributors to job losses in recent months. House sales are in creasing as a result of falling prices, helping to rebalance the market. However, mortgage delinquencies are still increasing. Wine. s wine-producing industries face a dark outlook through the end of this year. Layoffs at the metro area s wineries continued through middle of 9 in response to falling revenues for high-priced wines. In the second quarter of this year, rev enues for wines priced $ per bottle and above fell by 1% from the first quarter, accord ing to The Nielsen Company. Expectations for one of the largest grape crops in recent years at a time when wineries are discounting prices in order to reduce inventories are darkening the near-term outlook for grape growers. The recovery will help to unleash pent-up de mand for luxury items such as the county s high-priced wines. However, there is some downside risk that some consumers will be slow to reverse their newly adopted value pricing preferences. Tourism. The falling number of visitors to the metro area will limit the near-term outlook for its tourism-related industries. Hotel occu pancy and taxes collected from hotels fell in the first half of 9 from a year earlier. Em ployment in the metro area s entertainment, leisure and hospitality industries is projected to fall by 9% from its 8 peak through the middle of next year nearly twice the rate for both California and the ANALYSIS SAA SON The beginning of the expected recovery in business and personal travel in 1 will help to revive the county s tourism-related indus tries. In the long term, the metro area s repu tation as a premier tourist destination within California and overseas will be strengthened by regional and overseas advertising efforts. Housing. Falling house prices will move the lo cal housing market closer to bottom in the near term. House prices are projected to fall by 5% from their 6 peak through the first half of 1, according to the Case-Shiller home price index 15% more than the rate. The price drops have helped to fuel house sales in the metro area. Housing affordability levels are now at their highest levels in over two decades a plus for previously discouraged first-time buy ers. Downside risk for the housing market exists in the form of still-rising mortgage delinquen cies. After edging down earlier as a result of now-expired moratoriums, foreclosures jumped in the second quarter of 9. Combined with additional layoffs, the deterioration of mortgage credit quality could lead to an increase in the pipeline of distress house sales, which would extend the decline in prices further. The recession in is expected to last through year s end, and subsequent sluggish growth will allow the jobless rate to rise into the first half of 1. Thereafter, conditions will improve, with a stronger recovery in the early years of the coming decade than is expected nationally. Such conditions include vastly improved housing affordability and a renewed supply-demand balance that bolsters the housing market, a rebound in investment spending that supports tech-producing industries, and improved income growth nationwide that rejuvenates demand for higher-end wine and supports tourism. Eduardo J. Martinez October 9 1

5 8 TOP EMPLOYERS Kaiser Permanente, St. Joseph Health System 1,781 Sutter Medical Center of Santa Rosa 1,97 Safeway, Inc. Agilent Technologies Medtronic CardioVascular Amy's Kitchen 1,8 1,5 1, 9 River Rock Casino 66 Wal-Mart Stores, Inc. Kendall-Jackson Wine Estates 65 6 AT&T 597 Mary's Pizza Shack 575 JPMorgan Chase & Company 56 Lucky 55 5 Wells Fargo & Company 9 State Farm Insurance Company 75 Hansel Auto Group 7 JDS Uniphase Corporation 33 Beam Wine Estates 7 Source: North Bay Business Journal -, February 9 Public Federal... 1,7 State...,91 Local... 3,976 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 HOUSE PRICES SON SAA Source: FHFA, 1987Q1=1, NSA EMPLOYMENT & INDUSTRY INDUSTRIAL DIVERSITY EMPLOYMENT VOLATILITY DUE TO FLUCTUATIONS Not due to Most Diverse () Least Diverse Due to COMPARATIVE EMPLOYMENT AND INCOME RELATIVE TO % of Total Employment Average Annual Earnings SON CA SON CA Sources: Percent of total employment Moody s Economy.com & BLS, 8; Average annual earnings BEA, MOODY S RATING CREDIT QUALITY County 6.9% 5.% 5.3% 11.8% 9.5% 9.8% 9.% 63.% 63.1% 5.8% 36.8% 36.9%.% 3.% 3.7%.%.7%.% 1.3% 11.% 11.% 1.5% 3.%.%.5% 5.7% 5.9% 1.3% 15.% 13.% 1.9% 11.5% 13.8% 11.3% 1.5% 9.8% 3.5% 3.%.% 16.% 16.8% 16.% Aa SON $61,15 $59,933 $6,81 $68,18 $86,116 $73,65 nd $95,9 $73,79 nd $7,511 $73,96 $56,9 $68, $59,18 $65,59 $7,89 $7,661 $3, $3,357 $8,85 $57,59 $1,618 $89,379 $3,757 $9,993 $53,5 $5,13 $61,777 $56,657 $8,8 $8,76 $3,576 $19,73 $5,639 $1,11 $6,135 $6,171 $5,15 $61,18 $7,6 $59,9 LEADING INDUSTRIES NAICS Industry Employees () GVSL State & Local Government Full-Service Restaurants Beverage Manufacturing 6.3 FR Farms General Medical and Surgical Hospitals Limited-Service Eating Places Grocery Stores Account., Tax Prep., Bkkeep. & Payroll Srvcs Traveler Accommodation Services to Buildings and Dwellings 3.3 PH Private Household Workers Employment Services.8 51 Department Stores.7 38 Building Equipment Contractors Residential Building Construction.5 High-tech employment 9.5 As % of total employment.8 Sources: BLS, Moody s Economy.com, 8 3,, 1, -1, -, -3,, MIGRATION FLOWS Into, CA SON SAA Net Migration, SAA SON Sources: IRS (top), 7; Census Bureau, 8 6, PER CAPITA INCOME 1,85 38,615 CA Source: Bureau of Economic Analysis, 7 Number of Migrants San Francisco, CA,55 Oakland, CA 91 Sacramento, CA 719 Los Angeles, CA Napa, CA 5 5 Vallejo, CA San Jose, CA 6 38 San Diego, CA 36 Riverside, CA 196 Santa Ana, CA Total Inmigration 19 1,79 From, CA San Francisco, CA 1,837 Sacramento, CA 1,59 Oakland, CA 966 San Jose, CA 8 Napa, CA 33 Vallejo, CA Los Angeles, CA San Diego, CA Phoenix, AZ Portland, OR 97 7 Total Outmigration 1,98 Net Migration -, Domestic -5,9-5,97 -, Foreign 1,938 1,9 1,73 1,763 Total -3,311-3,155-96,5

6 Graphical Analysis Tech and Wine-Related Jobs Decline the Most in Recent Months Wineries Scale Back in the Face of Falling Revenues Employment, % change year ago, 3 mo. MA California % change year ago, 3 mo. MA beer, wine and liquor store sales beverage manufacturing employment Number of Visitors to Sonoma Drops During the Recession Sonoma Is the Cheapest Place to Do Business in the Bay Area % change year ago, 3 mo. MA 13 7 Cost of doing business, =1 Source: Moody s Economy.com domestic air traffic revenue passenger miles 1-6 leisure and hospitality employment 9-8 Source: Moody s Economy.com E 1F 11F 8 San Oakland Napa Vallejo Sonoma Francisco County House Prices in Sonoma Are Close to Bottoming Foreclosures Are Low in Sonoma but Are Still Rising 6 Sonoma County California Case-Shiller home price index 6 5 Mortgage foreclosures, % of $ volume Sources: Equifax, Moody s Economy.com California 18 3 Vallejo Sources: Fiserv, FHFA, Moody s Economy.com 1 Oakland E 1F 11F

7 5 Year Forecasts Gross Metro Product, Percent Growth Personal Income Growth 6% 5% % 3% % 1% % -1% -% -3% % ' '3 ' '5 '6 '7 '8 '9 '1 '11 '1 '13 1% 8% 6% % % % -% % ' '3 ' '5 '6 '7 '8 '9 '1 '11 '1 '13 Total Employment, Percent Growth Mortgage Originations ($Mil) % 3% % 1% % -1% -% -3% % -5% -6% ' '3 ' '5 '6 '7 '8 '9 '1 '11 '1 '13 $ $15 $1 $5 $ ' '3 ' '5 '6 '7 '8 '9 '1 '11 '1 '13 Net Migration (Thousands) Personal Bankruptcies ' '3 ' '5 '6 '7 '8 '9 '1 '11 '1 ' ' '3 ' '5 '6 '7 '8 '9 '1 '11 '1 '13

8 EDB Economic Development Board Moody s Economy.com help@economy.com