To avoid peaking, region needs ‘innovation bump’
ROHNERT PARK — Leading economic indicators suggest that the North Bay counties of Marin, Sonoma, Napa, Solano, Mendocino and Lake will enjoy continued growth in 2014. The emerging question, however, is whether the current economic cycle is approaching peak, according to an annual regional economic forecast at the 2014 Sonoma State University Economic Outlook conference Wednesday.
Describing a composite index of default notices, building permits, unemployment claims, the U.S. leading index, help-wanted ads and agricultural prices, Robert Eyler, PhD, head of the school’s Center for Regional Economic Analysis, said that the growth potential for Sonoma, Napa and Marin counties has recovered to approximately the level seen between Sept. 2006 and 2007.
Those leading indicators had trended downward through the recent economic downturn, and have since been climbing upward from a low point around Sept. 2009. It is a similar trend for Solano, Mendocino and Lake counties, with all six counties exceeding the leading indicators for the nation as a whole.
While the California Department of Finance projects growth through 2017, Dr. Eyler said signs of an economic peak could emerge sooner.
“We need some innovation bump to push that peak out further,” he said.
An index of coincident indicators showing current economic conditions, including non-agricultural employment, retail sales and personal income, showed Napa County leading the way in the current North Bay recovery. Dr. Eyler lauded Napa for focusing on wine and tourism “and doing it well,” with Sonoma and Marin returning approximately to conditions in late 2009. Unlike 2009, when unemployment and other measures were dampening growth, that indicator is now trending upward.
The counties of Solano, Mendocino and Lake have followed similar paths, with Solano showing the steepest signs of growth.
Median housing prices have jumped in the economic recovery over the course of 2013: up 17.1 percent in Sonoma County, 12.2 percent in Marin, 32.7 percent in Napa, 27.2 percent in Solano, 13 percent in Mendocino and 29.4 percent in Lake. Prices rose 19.4 percent on average throughout California.
The percentage of sales involving bank-owned homes and “short sales” have also decreased, with the proportion of those sales falling from 37 percent to 16 percent for the state as a whole and similar trend in the North Bay.
Yet a shortage of housing stock, specifically across the North Bay, has kept some buyers on the sidelines. And with interest rates creeping up amid the slowing quantitative easing practices of the Federal Reserve, competition to finance and purchase whatever stock is available could be even more intense this year.
Partially influencing the activities of the Federal Reserve is a target of 6.5 percent for national unemployment. The most recent rates for Sonoma County were 5.7 percent, with rates of 7.3 in Solano, 4.2 percent in Marin, 5.9 percent in Napa, 7.4 percent in Mendocino and 12.1 percent in Lake.
Yet one element that has yet to emerge in economic forecasts is California’s drought, one where economic effects could begin to manifest as much as a year after the dry spell itself. Higher-priced goods could drive a demand for higher wages, slowing hiring, he said.
Other long-range concerns include the aging of the state’s population, and that an environment unfriendly to business and the reach of globalization could push an increasing number of firms from Silicon Valley abroad in the coming decades.
“One of my biggest fears is that California is going to evolve into a giant golf course community,” he said.
Business investment as a driver of growth essentially recovered to levels last seen in 2005 by the end of 2009. Yet billions of dollars remain on the sidelines as cash reserves for both businesses and lenders, with still-tepid confidence keeping that cash from contributing to economic growth.
He lauded efforts by some North Bay cities to promote economic development, but cautioned that those efforts may also support competition between counties and cities and dampen economic benefits across the broader region.
“One thing we have to do better is sell not the quality of life, but the quality of our economics,” he said.
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