Sonoma County Outlook 2005: Looking Toward Growth

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Napa County OutlookDeveloping Niche and
CommunityOctober 13, 2006
Robert Eyler, Ph.D. Department of Economics Dire
ctor, Center for Regional Economic Analysis
Sonoma State University
eyler_at_sonoma.edu
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The Napa Economy

• 2007 Outlook
• National Economy recession or not?
• Housing Market downturn economic impact? and
• Continued global competition does Napa niche
  exist?
  
• Not much different than other local counties.
• In Napa, wine very important.
• Provides niche for other businesses and
  residents
  
• Employment in Napa both direct and indirect in
  this industry
  
• Mix of agriculture and manufacturing in wine
  industry
  
• Most of Napa employment service providing
• Supporting wine industry and tourism.

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Macro Trends

• Recession seems likely in U.S. overall
• Productivity growth since 2003 to begin cycle
  downward.
  
• Energy prices, specifically oil, beginning to
  have an effect on business decisions
  
• Unemployment rates drift downward has slowed.
• Oil prices finally retreating, still relatively
  high
  
• Seasonal shift in oil demand coming heating
  oil.
  
• Interest rates rising slowly
• Federal Reserve policy forcing issue
• Fighting inflation, seems to have worked.
• Rates not reacting completely yet
• Equity markets seems healthy in contrast

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Macro Trends (cont.)

• Geopolitical issues
• Middle East puts predictions and economic future
  in questions
  
• North Korea suddenly unpredictable
• China and India growth
• Outsourcing and offshoring to continue
• Latin American economic stability may help
• More wine competition over time from Chile and
  Argentina?
  
• Is it all about oil?

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Housing Market

• Local prices falling
• A mix of rising rates on ARMs and natural cycle.
• Still a simple supply and demand game
• More inventory, prices falling.
• Looks like an asset bubble, but supported below
• Was housing overvalued? Yes.
• Will a 3 and 2, SFH be 250,000 again soon? No.
• Construction and real estate services tied
• Construction leads the services
• Renovations likely a larger trend than new
  construction.

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Toby Tyler Leading Indicators

• Weighted average of macroeconomic data for each
  county.
  
• 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 moves in bolded
  direction.

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Local Economic Development

• Niche in Napa Is wine, et al. it for Napa?
• A political and economic trend in North Bay
• All counties devising where they will be in 10
  years.
  
• Economic development
• Concerns over costs of unmitigated growth.
• Need to engage diversified economy, put parts
  together

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The Niche Engine

• Clusters describe the community
• Housing, transportation, infrastructure
• Agriculture (wine)
• Hospitality and Tourism (only wine?)
• Education
• Construction
• Equity and Environment other, important issues
• Open space issues, alternative energy, wi-fi
  networks.
  
• Aging demography, shifting ethnicities.
• Need to forecast changes and effects.
• Does it matter? Yes.

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Local Development (concl).

• Three major questions concerning development
• Sustainability Definition difficult, practice
  needed.
  
• Unanimity Can Napa buy in as a whole to a
  vision?
  
• Capability Can Napa change and does it need
  change?
  
• Napa dichotomous must be recognized.

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Conclusions

• 2007 looks like recession, should be mild after
  mild growth.
  
• Consumer electronics, biotech, telecom still look
  good.
  
• Wine likely to grow as it lags cycle.
• International concerns do affect local economy
• Energy prices (not just gas) rising
• Pump price has psychological and real effects
• Need to concentrate on real effects
• Geopolitics trickle slowly down through national
  and state budgets.
  

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Conclusions (cont.)

• Outlook for North Bay marginally positive
• Continue real estate growth in question
• Slowdown should slow down.
• Cost of living a major factor in development
• Economy locally strong and diversified
• Large income gaps St. Helena vs. American
  Canyon
  
• Aging demography becoming a huge issue
• Environment naturally buttressed by wine?
• Are strategic partnerships available?
• Live globally, think locally
• When thinking about development need critical
  mass

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CREA at SSU

• To download this presentation, see
• www.sonoma.edu/org/crea/napa2007.ppt