Marin Economic Outlook: The Macro View

1
Marin Economic OutlookThe Macro View

• Robert Eyler, Ph.D.
• Chair, Economics Department
• Director, Center for Regional Economic Analysis
• Sonoma State University
• eyler_at_sonoma.edu
• www.sonoma.edu/org/crea/marin2006.ppt

2
Introduction

• Marin County continues to be an economic
  conundrum
• Its evolution is still much in question.
• Its participation in specific industries is still
  unknown.
• County wealth and jobs cannot all flow around
  real estate ad infinitum.
• Begin to import from other counties many goods
  and services (may already be doing this).

3
Some Macroeconomic Issues

• Cost of Living
• One of the chief issues
• May not be easily resolved.
• Should it be resolved?
• Economic growth comes with this price
• Unemployment and inflation trade off(?)
• Current unemployment rate Aug 2005 3.9
• CPI for SF a measure of Marin prices.
• EDD not measuring sectoral breakdown for Marin
  anymore, though tracking aggregate.
• I am lobbying for that to change.

4
(No Transcript)
5
(No Transcript)
6
(No Transcript)
7
What about energy prices?

• Energy prices include gasoline, natural gas,
  heating oil, electricity, etc.
• Should we worry?
• Yes, especially since we have seen productivity
  gains.
• No, economy should boom again in a visible way.
• Are oil prices a function of supply, demand or
  both?
• Both, but the news centers on supply conditions.
• What can be done?

8
(No Transcript)
9
Real Estate Markets

• Local real estate also (obviously) an issue of
  supply and demand.
• No apparent lack of demand, pressure continues
  from outside the area.
• Both S and D driven by interest rates,
  expectations.
• Supply to be more restricted over time in Marin?
• What choices remain?
• All local areas facing the same, basic problems.
• What does Marin want to become?
• Suburb or balanced economy?
• Following slide from CAR website

10
(No Transcript)
11
Macro Challenges for Marin

• Interest rates
• Higher interest rates should slow housing
  markets growth rate, not its direction.
• Unlikely that the upward movement will stop in
  trend, speed will slow.
• Interest rates are pressured from two areas
• Fed Policy and Government Budgets
• US Economy incomes stagnant for close to four
  years.
• Foreign purchase of American debt exacerbates
  future problems.
• Not recycling interest payments through
  multiplier effects.

12
Challenges (cont.)

• Labor Mobility Where will Marin get workers?
• Labor stats can be deceiving
• Where do Marin workers live?
• Sonoma, Napa, Alameda, Solano Counties?
• Marin County?
• Until the next census, we are not for sure.
• In all cases, expect wage demands to rise
• Especially true if economy begins to move
  steadily again.
• Can your business afford higher wages, insurance,
  gas prices, etc.?

13
Challenges (cont.)

• Energy prices (not just gas)
• Gasoline the largest headline.
• Natural gas prices will also rise.
• Can stagflation happen again?
• The pump price has both a psychological and real
  effect.
• Psycho The apocalypse is near because gas prices
  went up 10 cents last week ?
• 3 of the current price, or
• 2/week if 20 gallons used per week.

14
Challenges (cont.)

• Real Gas prices change goods prices
• Cumulative effects damaging,
• Socioeconomically (working poor hurt most).
• Walk up the supply chain, no business is immune.
• Must choose between workers or gas.
• No choice at all (unfortunately), firms will lay
  off or outsource more.
• This is the beginning of stagflation?
• Late 1970s Early 1980s confluence of bad FED
  policy, oil shocks and macro stagnation.

15
Leading and Coincident Indicators

• These indicators are meant to show the shape of
  economic cycle.
• Leading shows 2006 should be a positive, with
  some slight slowing (may not reflect new signals
  yet).
• Index has both rose and fell in last six months.
• Coincident shows 2005 rising, but latest issues
  not quite in this indicator.
• Need to look at both together.
• Leading where we are going, coincident where we
  are.
• Some indications that we are slowing down.

16
Toby Tyler Indicator Basics

• Weighted average of macroeconomic data for each
  county.
• Leading Indicators tell us where we are headed
  (last year)
• 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.
• Coincident Indicators tell us where we are
• Non-agricultural employment (?)
• Retail Sales (?)
• Personal Income (?)
• All these move with economy coincidentally.
• The leading indicator drives the coincident.

17
Marin Leading Indicator Index, 1996 Present
(1996 100)
18
Marin Coincident Indicator Index1996 Present
(1996 100)
19
Conclusions

• Mixed news not going away
• Fourth year of recovery, as defined by growth
  of US GDP.
• Local recovery depends on industry.
• International and domestic uncertainty looming in
  multiple forms.
• Interest Rates and Inflation on the rise.
• Unemployment to fall? Can it much more?
• Indicators also mixed.

20
Conclusions

• Outlook for Marin marginally positive
• Continue real estate growth, as demand continues
  from outside.
• Cost of living a factor for the poor.
• Need to react at some point.
• Shrinking middle class in Marin?
• Business attraction and retention a major
  challenge here.
• Can go into recession, given opposing forces.
• Gas prices merely one of the negatives.

21
CREA at SSU

• See website and find this Presentation
• www.sonoma.edu/org/crea