Napa County: A Sliver Lining in A Regional Storm IMPACT Napa North Bay Business Journal Conference A

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Napa CountyA Sliver Lining in A Regional
Storm?IMPACT NapaNorth Bay Business Journal
ConferenceAugust 26, 2008

• Robert Eyler, Ph.D.
• Chair, Economics Department
• Director, Center for Regional Economic Analysis
• Sonoma State University
• eyler_at_sonoma.edu

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Introduction

• Napa County is a microcosm of the North Bay
  economy
• Wineries and tourism important to Napa County
• Relatively affordable housing versus other North
  Bay options
• Centrally located for all compass points
• Mix of ethnic, age and skills makes Napa a place
  of growth
• The current economic climate
• For Napa County, the data are relatively good.
• Recessionary forces buffered somewhat in Napa
• Still suffering as are most other municipalities

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Introduction (cont.)

• Napa exposed to some long-term risks
• Especially in terms of wage demands given
  inflation pressure on working poor
• Gas prices rising simply a sign of this frailty
• Cost of living relatively high vs. CA
• CAR estimating an inverse relationship between
  median home price and foreclosures
• This characteristic not going away anytime soon
• Where will growth be located?
• Is it wanted?
• Must also consider regional competition

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Introduction (cont.)

• Unemployment rising at a slower pace versus other
  NB counties
• Exposure to bankruptcies and foreclosures as a
  result
• American Canyon the focus of much of this
  activity
• Dichotomy between northern and southern Napa more
  obvious now.
• Is this relationship a good one?
• Economic Development
• Needs partnerships between private and public
  sector to succeed
• Does a common vision of Napa exist?

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Source CA EDD
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The Macroeconomic Situation (Quickly)

• Not much to add to media bombardment
• Three things to consider
• Election has exacerbated uncertainty
• American consumers still convinced presidents
  have economic power beyond military
• Will taxes rise?
• We spent ourselves into this situation, need to
  save our way out
• Real estate is a savings, not a spending, vehicle
• Inflation pressure will continue
• Housing bubble simply worsened this pressure and
  sped it up
• Dont consider any slide in oil/gas prices a
  long-term trend

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Housing Market

• Napa, as of June 2008, has 6th highest median
  home price in CA among counties
• Napa 440K, Sonoma 385K
• City of Napa, 429K
• Approximately 20 lower than last year in June
• Foreclosures may be inversely related to median
  home prices (CAR)
• American Canyon vs. St. Helena a good test of
  this.
• All counties exposed to problems

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Napas Economic Mix

• Diverse industry mix
• Napa is not all wineries, hotels and restaurants
• Much of its strength comes from these
• Construction still strong in Napa
• Services wide in breadth and available throughout
  county
• Location
• Central location allows residents to commute
  relatively easily to other counties for work
• Napa mainly an export economy

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Source CA EDD
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Source CA EDD
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Source CA EDD
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Source CA EDD
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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
• Inverse means as indicator rises, economy slows.

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Toby Tyler Coincident Indicators

• Coincident Indicators tell us where we are
• Non-agricultural employment
• Retail Sales
• Personal Income
• Once business and consumers receive positive
  signals, they hire and spend more as a reaction.
• The leading and coincident together trace the
  business cycle
• Overall an unstable year
• Napa relatively more stable than others

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Comparison of Leading Indicators
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Comparison of Coincident Indicators
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Wine and Manufacturing

• Manufacturing jobs have actually increased in
  Napa since 1990
• Wages in manufacturing increased through this
  decade
• About 17.5 of Napa labor in manufacturing
  (wineries)
• Construction jobs similar in wage and multiplier
  effects
• A puzzle exists
• Should high-tech manufacturing be pursued by
  Napa, versus Solano or Sonoma counties?
• Is there room?
• Is it wanted?

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Wine and Tourism

• The current upswing in these industries dependent
  on three key items
• Changing tastes toward wine, where Napa has a
  niche
• Americans are traveling closer to home due to
  both gas prices and dollars value and
• Foreign economies not in recessionyet
• Europe and Asia beginning to show signs of
  weakness
• Are Napa firms tracking where customers
  originate?
• Should they?

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The Education Puzzle

• NB wages, both average and median, lag behind
  state averages
• Napa median 85.1
• Sonoma median 86.2
• The puzzle educational attainment of residents
  greater than CA on average
• Marin, Napa and Sonoma all have more BA or
  greater degree holders on average than CA
• Does non-working wealth explain the difference?

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Napa Challenges

• Causality problem in labor mitigated by
  public/private partnerships
• Businesses signal to education their needs
• Education delivers, businesses come, closes loop
• Living wage to be or not to be
• May create more problems than it solves
• Pressure to develop in certain ways must match
  community vision
• Is there a community vision for Napa?
• Regional competition

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Challenges (cont.)

• Dichotomy between northern and southern Napa
  County a problem(?)
• Most tourists to northern Napa must drive through
  southern Napa to get there
• Should the City of Napa simply serve as a
  residential center for the rest of the County and
  other counties?
• Can southern Napa larger advantage of this?

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Conclusions

• Napa likely the best of the North Bay counties
  during this downturn
• Wineries growing and sales rising
• Countercyclical growth due to numerous factors
• Tourism industry to expand
• Napa an export economy
• Exposure to risks and challenges are real
• Must watch other counties
• Competition likely to rise and continue
• Can and should Napa attract other industries?
• Can growth take place for Napa and work?

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www.sonoma.edu/org/crea/impactnapa1.ppt