North Bay Region

Economy Impacted by Wildfire Recovery as Growth Continues Slowing

The North Bay area’s economy will continue growing—although at a slower pace—into late 2020. However, the post-wildfire recovery period is still making its mark on the local labor force, housing market, and vibrancy of the region.

That’s according to the 26th Annual Sonoma State University Economic Outlook Conference and Housing Summit recently hosted by the North Bay Business Journal. The keynote speaker’s opinions spotlight intriguing viewpoints, trends and projections so your credit union can plan appropriately.

North Bay Regional Forecast

  • The North Bay region’s economy will likely grow into late 2020 even as the current expansion slows down between now and then. California labor market indicators (job growth, unemployment, and labor force participation) will remain strong, but one factor to remember going into this “late stage” period of economic growth is: What types of jobs are being created? As the chance of a recession becomes more prominent heading into 2020 or 2021, local North Bay leaders will want to keep an eye on whether technology employers in the Bay Area start ratcheting down employment hires, stop fully, or even start cutting positions (any of these possibly signaling the economy is finally turning direction). U.S. Gross Domestic Product (GDP)—the traditional measure of economic growth—will post a 2.7 percent rise in 2019, 2.1 percent in 2020, and quite possibly 1.7 percent in 2021 as the economy slows down heading into a recession sometime between late 2020 – early 2022.

  • Even as the next recession is projected to be relatively “mild,” the North Bay region’s economy already stands at a challenging crossroads. The wildfires that ravaged different areas of Northern California have placed North Bay in the crosshairs of a housing shortage and potentially challenged labor market. There are a mix of short and long-term effects—some negative (lost wealth, opportunity trade-offs, and migration) and some positive (rebuilding efforts and economic stimulus). Three issues to be aware of are: 1) how many residents and credit union members will choose to rebuild their “local” lives versus migrate elsewhere; 2) how many businesses and local workers adjust—or not—to their post-disaster environment; and 3) what types of insurance and federal monies, and how much, will flow into local economies. Local credit union leaders should keep in mind that local governments and communities will experience a future fallout in property tax revenue.

  • Each county within the North Bay region is exhibiting different characteristics as the broader economy downshifts into slower-growth mode. After four years of wildfires and devastation, Lake County somewhat “feels” like it’s been in a recession over the past few years. In Marin County, high-wage job growth has only progressed, but rising housing costs are eroding local households’ purchasing power and somewhat hampering economic growth. Mendocino County continues to grow but at a very slow pace similar to other rural areas of the state. Napa County’s economy is starting to slow down as capacity constraints (labor force) limit growth. In Solano County, business and worker growth has continued. And in Sonoma County, the wildfire recovery seems to be moving in the right direction, with job growth steadily continuing. On the whole, the entire region’s economy is showing very broad signs of slowing down as California and the United States begin to slow down.

  • From 2002 – 2013, the North Bay region’s economy consistently underperformed expectations of business and consumer growth—but that’s changed. From 2014 – 2018, the region’s “coincident indicators” (backward looking) in most local counties started matching up with its “leading indicators” (future looking), meaning the region’s economic performance finally reached expectations and matched pre-conceived notions by local experts and business sentiment. Going forward, the fastest economically growing counties in 2019 are expected to be Sonoma, Napa, Mendocino, and Lake (the slowest are Solano and Marin)—although all will grow. Still, even as the entire region has economically outperformed the United States from 2013 – 2016, that's also changed over the past few years, flipping in 2017 and 2018 (and most likely staying this way in 2019). On a side note, all six counties are experiencing record-high economic activity compared to history.

  • Annual non-farm payroll job growth started diverging between Sonoma and Napa counties in 2017—a trend that hasn't stopped. This measurement for both counties converged in 2016 at 2 percent annual growth. But over the past two years, growth has risen even more in Sonoma (3 percent as of 2018) while stooping into slightly negative territory in Napa (-0.5 percent in 2018). It's not the first time this has happened, but these numbers stand out as local leaders are trying to get a grip around the economy's dynamics after wildfires devastated the area over the past few years. However, before the wildfires much attention was on Napa because of its employment growth. “Before the recession, Napa was kind of rolling around, quasi-agricultural, had not really put a flag in the ground in terms of tourism, and then in 2010 it just took off like a rocket,” said economist Robert Eyler in a North Bay Business Journal article written on the forecast conference. “If you think of where Napa was in 2008 and where it was in 2015 – 2016, it’s like two different worlds.”

  • It’s conceivable North Bay regional home prices will continue rising in 2019, but at different paces depending on the individual county. The following increases for a median-priced single family home may materialize by the end of this year: 1.1 percent in Lake County; 5.4 percent in Marin County; 5.6 percent in Napa County; 6.3 percent in Mendocino County; 6.7 percent in Solano County; and 6.9 percent in Sonoma County. The broader economic expansion lasted longer than many experts originally thought (and affected real estate prices), but the local region could not foresee so many homes destroyed and households dislocated from the recent wildfires (causing the “unexpected” with respect to shifts in the local labor market, employer job positions, and household/business relocations). Time will tell how this plays out.

  • Today's value of a median-priced single family home in Marin, Napa and Sonoma counties is noticeably different than its inflation-adjusted "real" value. The current price in Marin County ($1.13 million) seems much higher than the last record peak of $963,000 in 2008, but in reality it costs $890,000 today after factoring for inflation. The same is true for Napa and Sonoma (although the price appreciation levels are different): $672,000 in Napa today (or $549,000 in today’s “real” dollars) compared to $708,000 in 2008; and $633,000 in Sonoma today (or $517,000 in today’s “real” dollars) compared to $659,000 in 2008.

  • The labor market and housing dynamics impacting the North Bay region’s economy due to the recent wildfire destruction are not expected to disappear anytime soon. Despite the ravaged communities, annual building permits (or “housing starts”) in Sonoma County are skyrocketing. They ranged from 400 – 700 yearly from 2010 to 2017, but since then they’ve risen to 3,400 in 2018 and show signs of possibly hitting a higher mark in 2019. This is a 386 percent increase (more than quadrupling). The last time they reached this yearly level (about 3,400) was 1990.

  • Despite the mini residential building “boom” in communities with residents who are fortunate enough to rebuild homes, other neighborhoods are migrating out of Sonoma and Napa counties to seek new opportunities. These counties experienced a 0.3 percent decline in total population from 2017 – 2018 due to wildfire victims moving out. This is compared to nearby areas such as San Francisco, which saw a 1.2 percent increase. A total of 7,000 individuals migrated out of Sonoma and Napa counties from 2015 – 2018, which can destabilize the local labor market (and local consumer demand for goods and services too). There are a few less businesses in certain areas, but there are also less workers available in some areas to work in those shops and companies that are still operating.

  • Any credit union that wants to stay engaged with an affected member in this post-wildfire period should be aware of where these individuals choose to establish their “new” lives, means of livelihood, and the number and type of financial institutions in those new environments. Credit unions should also envision how local labor markets may expand, contract or change depending on the local fallout. The demographic of local workers and customers may transition depending on who was hit hardest by the fires and what stage of life they’re in—younger people, middle-age, or the elderly. Although it’s not local, one example is extreme: the Camp Fire in Butte County wiped out nearly 14,000 residences (along with 4,500 other structures and commercial buildings). And across broader Northern California, wildfires have gutted 6,800 homes and resulted in $12.6 billion in insured losses.

  • As the broader North Bay/Northern California region continues its recovery from the wildfires (even as the economy continues its last stage in this growth cycle), questions to ponder are: Where will the resources to accommodate post-wildfire regions be directed toward going forward? Is there more post-disaster insurance money in the pipeline, or is it trending downward from here on out? Will 2020 see the end of insurance money to help those dislocated and living in temporary rentals (expected by some)? Putting aside the post-wildfire efforts, how will auto and home sales react if short-term and long-term interest rates on borrowing either flatline or continue to rise?

  • Other North Bay regional economic issues remain, even as incomes continue rising and job creation mostly remains steady. The cost of living is high due to increasing home-purchase and rental prices, especially because of supply constraints. The biggest challenge (and opportunity) is to replace the number of residential units that existed before the wildfires at very least, or build even more units than originally existed. However, the anti-development political environment, as well as the cost of rebuilding, could somewhat restrain these efforts (time will tell).

  • You can read the North Bay Business Journal’s synopsis: click here to view local news coverage of the conference, keynote speakers, and the panel of experts discussing housing, labor, and business trends ("North Bay Economic Sailing Mostly Clear Into 2020, but Some Waves Are Growing, Experts Say”)

Local County-Level Perspectives
The California Department of Transportation (Caltrans) has released its 2018 – 2050 demographic forecast for all counties in California regarding local jobs, wages, home prices, population, personal income, taxable sales, net migration, wildfire issues, public policy implications, legal cannabis, industries, workforce, and more.

For forecasting purposes, the shorter-term economic projections for 2018 – 2023 within this county-wide report by Caltrans do not factor in an economic recession into its local scenarios. They are only highlights stemming from a baseline projection (view the report above for more information).

Latest CA Economic and Demographic Research
The organization “Next 10” recently released a handful of new studies in early May looking at divisions in California's economy with respect to residents' income, where they live, and other key insights:

Demographic Profile and Projections: North Bay Region*

  • Total population: 1.51 million (and will hit 1.6 million by 2025).
  • Working-age individuals (15 - 64 years old): 65 percent of total population in 2015 (and will fall to 61 percent by 2025).
  • Labor force (at least 16 years old who are working/looking for a job): 752,000 out of 1.18 million adult population.
  • Labor force participation rate (adults who “want” to work): 64 percent (or 752,000 individuals).
  • Unemployment rate: 3.1 percent (versus 4 in CA and 3.9 in U.S.)
  • Unemployed workers: 24,200.
  • Median household income: $71,000 as of 2018 (compared to $66,600 for CA and $59,000 for U.S.)
  • Poverty rate: 11 percent (versus 14 in CA and 14 in U.S.)
  • Education of population: 41 percent have a college degree; 30 percent some college; 19 percent high school diploma; and 10 percent no high school diploma.
  • Employment sector growth: click the following links for local future growth breakdowns (2014 – 2024) of nonfarm job projections by industry, occupation, education, and fastest-versus-largest areas of importance: Vallejo-Fairfield region; Napa County region; Sonoma County region; Marin County region; and Lake-Mendocino-Del Norte-Humboldt region.
  • * North Bay is the combined counties of Marin, Sonoma, Napa, Solano, Lake, and Mendocino.
  • ** Data as of January 2019 from the California Center for Jobs and the Economy; California Employment Development Department; California Department of Finance; Federal Reserve Bank of St. Louis; U.S. Bureau of Economic Analysis; and U.S. Census Bureau

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