Even as Sonoma County economy slows, it is expected to create jobs

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Back Article published - Feb 18, 2008
SONOMA COUNTY BUSINESS FORECAST: Even as Sonoma County economy slows, it is expected to create jobs
SSU economist says good, weak indicators create a ‘growth recession’
by William Jason
Staff Reporter

SONOMA COUNTY – Sonoma County already is in a mild economic downturn, but the slowing is likely to be short-lived and will happen amid continued job growth, constituting a so-called “growth recession,” according to Dr. Robert Eyler, an economist and head of the Center for Regional Economic Analysis at Sonoma State University.

“Right now, I’m bullish about 2009 where I’m less optimistic and a little bit bearish about 2008,” Dr. Eyler said.

Statistics tell a mixed story about the local economy. Indicators such as building permits, default notices, help wanted advertisements, and unemployment applications – used to forecast economic performance – are at their weakest levels of the decade.

Much of that weakness stems from turmoil in the housing market. Notices of default increased more than 150 percent in 2007 to 2,171, and new building permits dropped 31 percent to 1,062.

Meanwhile, indicators such as job growth, retail sales and personal income – used to describe the current economy – remain strong. For example, non-agricultural employment climbed 1.1 percent in 2007, and by December 2007 it was up 3.2 percent since the end of 2005, according to figures from the Sonoma County Economic Development Board.

According to Dr. Eyler, the mixed indicators show that economic activity in Sonoma County is likely to slow in 2008, but job growth will be maintained in certain sectors.

“It’s probably going to be in retail, personal services and other types of low-wage jobs,” Dr. Eyler said. “That’s where we’re likely to see growth in the coming year.”

While housing weakness is one of the key causes of the predicted downturn, Dr. Eyler said declining home prices could have short-term benefits for businesses facing a shortage of local workers.

“There’s certainly some subset of the economy that gains from housing falling because people can afford to live where they work,” he said. “The flip side is, as a construction worker or real estate services professional it does affect my job. It’s difficult to know how that will balance for the entire county.”

Sonoma County’s trends are mirrored elsewhere in the North Bay, although Napa County boasts higher growth in areas such as jobs, sales and income.

“Sonoma County has really matured as an economy,” Dr. Eyler said.

Throughout Sonoma County and the North Bay, external trends, such as the declining value of the dollar, will also impact businesses. The currency decline, steepened by federal interest rate cuts, is helpful to export sectors such as technology, wine and tourism, but will put a squeeze on businesses that rely on local and domestic markets.

“If you’re an exporter you’re jumping up and down because this is exactly what you want to see, but if you’re a retailer, it’s going to cost you more to put goods on your shelves,” Dr. Eyler said.

The banking sector is also the beneficiary of declining short-term interest rates. Local banks have already been reporting higher profit margins as a result of declining interest rates for savings and money market accounts and certificates of deposit.

Another external factor that could impact the local economy is the 2008 presidential election, which could dampen business activity because of uncertainty about future tax policies and federal spending.

“Until people feel some sense of clarity about who’s going to be in the White House, I think there will be some really slow decision making about business employment and things like that because they’re not sure about what kind of regime they’re going to get,” Dr. Eyler said.

Meanwhile, the state’s budget crisis will crimp local and state agencies and institutions.