Bank of Marin Breakfast: North Bay Economic Forecast April 5, 2005

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Bank of Marin BreakfastNorth Bay Economic
ForecastApril 5, 2005

• Robert Eyler, Ph.D.
• Center for Regional Economic Analysis
• Sonoma State University
• www.sonoma.edu/org/crea

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Introduction

• 2005 so far looking good, with some warning
  signs.
• Housing Prices have stabilized, for now.
• Unemployment continues to fall slowly.
• EDD revised data 4.2 for Feb. 2005 for Marin.
• 4.9 in Sonoma, 4.8 in Napa.
• Gas prices starting to become a larger problem
  (emotionally also.)
• Stock markets remain volatile, oil prices driving
  volatility
• Job growth like 1990s, incomes growth not.

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The Past Year

• Three major economic events characterized the
  last 12 months economically
• The Continued Iraq war
• Uncertainty over gas prices, no end in sight.
• Budget crises - Federal and State
• Value of dollar internationally a by-product.
• Low interest rates gave way to FED contraction
• Stock market volatile as interest rates rise,
  uncertainty exists.

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The Economy This Year

• What can we expect looking forward?
• Interest rates will continue to rise.
• Market forces, stock market gains and FED policy.
• State and Federal Budgets not going to balance,
  must borrow to pay.
• Marin Unemployment stabilize at around 3.5.
• Boom not specific yet, and may not be.
• Revision by EDD somewhat confusing (Marin lumped
  in to SF area)
• Cost of living will continue to rise.
• Inflation waiting in the wings, too much
  expansion in policy
• Difficult to use policy directly here.
• Much of this a by-product of modest expansion.

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North Bay Economy

• Balanced economy
• Much more than Silicon Valley, LA, SF
• Still prone to shocks
• Marin probably best insulated of North Bay due to
  demography and wealth, as well as balance.
• Regional Economy in growth period
• Not the same as late 1990s, cant expect it
• Northern parts to grow the fastest
• The new frontier, lower costs for businesses (to
  a point).

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The North Bay (cont.)

• Tyler Leading Indicators for six North Bay
  counties, and a composite.
• Lake, Marin, Mendocino, Napa, Solano, and Sonoma
  Counties.
• Meant to forecast the economic cycle.
• Leading Indicator on rise in trend, signal of
  positive 2005.
• Once cycle begins, difficult to stop.
• This cycle may be modest in amplitude.

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Marin and North BayLeading Indicators

• Leading Indicators tell us where we are headed
• Default Notices (Inverse)
• Building Permits (Positive)
• New UI Claims (Inverse)
• US Leading Index (Positive)
• Help-Wanted Ads (Positive)
• Ag Price Index (Positive)
• As indicator increases, economy forecasted to
  move in bolded direction.

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Marin LI (cont.)

• 1.7 increase since Jan. 2004, 0.8 since June
  2004
• Momentum from last 18 months slipping.
• Upward movement in trend good for this year.
• Driven by employment rising, and residential
  building permits surging
• 636 units in 2003, 1,060 units in 2004.
• Construction to come in 2005 and 2006.
• US Leading Indicator also rising in trend.

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Caveats and Questions

• Three major questions stand out for Marin
• Cost of living low unemployment ? high prices?
• Should Marin find a solution?
• Clusters How will Marin seize opportunities?
• Housing everywhere a supply and demand game.
• Business attraction and retention a function of
  both business and worker costs.
• Space considerations where will new businesses
  go?
• What exogenous forces affect Marin?

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Targeted Industry Study

• Industries identified as targets must now be
  pursued
• Digital Arts still has not shown a viable
  direction.
• Green Building must be complemented by zoning
  policy and incentives.
• Life/Health Sciences probably the best cluster
  looking forward
• Demography and Biotech trends match this cluster
  well locally.
• The tough part how does Marin market itself,
  regardless of cluster foci?

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Other Stats to Watch

• Demographics in Marin, unlikely to change much
• Marin among the most aged counties in CA.
• Marin has the highest per capita income in CA.
• How and should these shape Marin planning?
• Vacancy Rates, both residential and commercial
• Good indicator of available space and pressure on
  real estate prices (SF rates down to 17.6 4th
  qtr 2004).
• Was 23.8 in 1st qtr 2004 business going in
  there, maybe not Marin.
• Watch other counties major stats because of

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An Issue That Remains

• Interdependency
• Marin County has more than local competition for
  new businesses.
• San Francisco competes as well as Sonoma, Napa,
  Solano, Santa Clara Counties, etc.
• Will Marin lose high-tech battles in the future?
• Does a regional vision exist?
• Can one exist, given history and differences?

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Conclusions

• Marin must not rest on its laurels
• All businesses have a vested interest to attract
  the right kind of businesses.
• Cannot expect that real estate prices will fall
  dramatically, nor rise exponentially alone.
• Marin is a living destination
• Can Marin be a non-retail, business destination
  long-term.
• Balance needed, watch industry-specific
  employment.

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Conclusions

• Must see Marin as a country, not a county per se.
• If gains are to be made locally, must support
  business entry.
• Services in place, need government to support
• Unemployment a great gauge, but from other
  counties
• Moves coincident with US U rate
• The best measure of inflationary pressures
• Marin must both compete and cooperate
• If businesses see a cooperative environment,
  Marin differentiates itself immediately from
  other local areas.

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CREA at SSU

• For more, please see CREA website
• www.sonoma.edu/org/crea