SANTA ROSA - The North Bay's largest county the is not out of the recessionary woods yet, but reasons for hope are emerging and there are indications that things will get better amid a number of challenges that will remain for years to come.
These were among the conclusions reached by Ben Stone, Sonoma County Economic Development Board executive director, and Steven Cochrane, Ph.D., an economist and managing director with Moody's Economy.com, during the June 25, Regional Economic Outlook conference at the Hyatt Vineyard Creek Hotel in Santa Rosa attended by more than 250 business leaders.
"The worst is over, but there won't be an immediate turnaround in our local economy," Mr. Stone said. "Signs of stability are emerging and some corrections have yet to be made."
Throughout the country, prospects are improving that the recession will be over by year's end, and there is evidence that housing starts are near bottom, based on the recent firming of new home sales and lower new home inventories, according to Dr. Cochrane.
"Nationwide, consumers are no longer panicked. Federal infrastructure outlays as part of the stimulus package will also begin to increase in earnest later this year - more than offsetting budget cuts that state and local governments are being forced to take."
He cautions that recent increases in long-term interest rates pose a threat to optimism for a quick end to the recession, fueled by heightened worries about future inflation and record government borrowing that are putting upward pressure on interest rates.
"Concerns that the massive liquidity the Federal Reserve is pumping into the financial system will eventually ignite runaway inflation are misplaced, since most of the Fed's credit facilities are short-term and designed to wind down as private credit markets revive," he said.
"The nation has very serious fiscal problems, but it is premature for investors to focus on that now because government borrowing is occurring when private credit demands are extremely low and personal saving has surged by 6 percent," Dr. Cochrane said. "However, unless long-term rates give back some of the increases soon, the Federal Reserve will be under pressure to increase its commitment to buy longer-term Treasury securities."
The downturn has taken its toll on the Sonoma County economy and the county remains in recession, but it no longer seems to be intensifying, Dr. Cochrane said.
While the unemployment growth rate started to level off in recent months, it has risen higher than the national average and the number of payroll jobs has fallen at a rate exceeding the state or the U.S., based on the Moody's Economy.com report.
As employment across service-producing industries has fallen, the rate of decline has slowed.
"However, the county's labor force growth remains steady, indicating that job seekers are not discouraged nor are they fleeing to other labor markets in large numbers. This means that the labor pool may remain sufficient to support any near-term economic recovery," Dr. Cochrane said.
The biggest change for Sonoma County is an improvement in housing affordability. Home sales are increasing as the pace in decline of housing prices has slowed.
Moody's housing affordability index for Sonoma County has risen from a near record low of 44 in 2006 (a median income-earning family could afford a house priced only at 44 percent of the median sales price) to a near record high of 93 - a sharp turnaround in a short period.
Local food, beverage and tech-producing industries are expected to expand, supplemented by travel and the tourism industry, with broader offerings toward health and lifestyle supported by a highly skilled and innovative workforce, Dr. Cochrane said.
The current manufacturing, travel and tourism downturn has been less intense than in other areas of the state, he said, and household finances have weakened but have held up better than in many other areas of California due to the cushion provided by Sonoma County's above average household income.
While consumer loan delinquency rates are rising in Sonoma County, the overall rate remains below the state average.
The relatively high cost of doing business has burdened the local economy for some time. Energy costs -- that are nearly 50 percent above the national average -- continue to be a factor, while the tax level is only marginally above average.
Meanwhile, winemaking, technology (telecom and medical instruments) as well as travel and tourism are the primary growth drivers.
Industry consolidation and reduced U.S. and worldwide demand for communications, computer and medical devices has continued to accelerate the long-term decline in the county's manufacturing employment statistics and industrial production rates, which continues to fall at a yearly pace of 8 percent, Dr. Cochrane said.
Construction permit applications for single-family homes have leveled off, but commercial permits have declined rapidly through the early months of 2009 resulting in a 10-year low for construction employment.
A rebound in home construction activity is still several years out, and a return to the era of high prices for homes is not expected to reach pre-recession levels until 2017 or beyond.
The long-term outlook for the winemaking industry remains especially favorable, however, as the industry in Sonoma County matures, growth will not be as rapid as in the past, he said.
National demographic trends suggest healthy prospects for grape growers and winemakers, based on per capita wine consumption figures that rose to a new peak in 2008.
For the immediate recovery, Dr. Cochrane said it will take patience.
"Economic recovery in Sonoma County is expected over the coming two years, but the pace of growth will be slow. Employment will probably continue to decline through mid-2010, and accelerated growth is not anticipated until late 2010 or into 2011," Mr. Stone said.
For more information, go to: www.sonomacounty.org/edb/reports.htm and visit the Reports and Statistics section for "Considering Economic Recovery in Sonoma County," or call 707-565-7170.
