North Bay has economic strengths amid slow US, state GDP growth, economist says

North Bay, Marin, Mendocino, Napa, Solano, Sonoma

By Gary Quackenbush
North Bay Business Journal

Headwinds of economic recession appear to be a few years from gathering strength, and North Bay economies mostly are faring better than those of California and the U.S., an economist said Wednesday at an annual conference on the region’s health and prospects.

“As of February 2017, no national or state recession is predicted through 2020,” according to Robert Eyler, Ph.D., professor of economics and dean of the School of Extended and International Education at Sonoma State University.

At the 24th SSU Economic Outlook Conference, Eyler provided a view of national and statewide conditions as well as a look at the North Bay’s economy, higher education, technology and innovation.

The conference, underwritten by Bank of America Merrill Lynch and co-hosted by North Bay Business Journal and Sonoma State University, was attended by more than 260 business leaders, educators, students and local officials. Sponsors included Exchange Bank, Empire College, the university’s School of Business and Economics and Tri Counties Bank.

Presenters included SSU President Judy Sakaki, Ph.D.; Ray Johnson, executive director of the Wine Business Institute at SSU; Chris Waugh, chief innovation officer at Sutter Health; and Wamsi Mohan, director of equity research covering U.S. information technology supply chains for Bank of America Merrill Lynch.

Eyler said the gross domestic product of the national economy is expected to grow at just over 2 percent this year. California is expected to grow at a faster pace, in excess of 2.5 percent per year. State growth should continue to exceed that of the national GDP to 2019 — assuming no unexpected events that could disrupt this trend.

And much of the North Bay is experiencing even faster growth.


Sonoma County is the region’s economic driver and the most diverse with agriculture, life-sciences, technology, manufacturing and a services hub for all communities above the Golden Gate Bridge, Eyler said. This county has experienced strong job growth, with approximately 8,300 new jobs since 2014.

Manufacturing growth has been seen mainly in the nondurable-goods sector and in food and beverage categories. Sonoma County is evolving to become a California craft beer center, even as the local wine industry continues to grow.

“The question is, what will Sonoma County look like long-term?” Eyler asked. “Will more manufacturing entities come to the county, and will life sciences be its tech play of the future? Ben Stone and the Sonoma County Economic Development Board have been very active in engaging the business community and assisting in its growth.”


Holding the most promise for opportunities among the North Bay’s six counties is Solano, in Eyler’s view. There are elements of the Bay Area in the southern Solano cities of Benicia and Vallejo and of the Sacramento and San Joaquin valleys in the northern and eastern Solano cities of Vacaville, Dixon and Rio Lindo.

But Fairfield and adjacent Suisun City are focal points for the county economy, Eyler said. The central Solano cities have added more jobs since 2014 than Sonoma County — 8,400.

Attracting people to live and work in Solano — and raising home prices — are Fairfield’s Travis Air Force Base; major food and beverage manufacturers and life-science companies; and those developing logistics assets around these industries.


But the North Bay economic “star” in the wake of the Great Recession is Napa County, since its employment level barely moved during the downturn, Eyler said. While its construction and real estate markets did suffer, investors and developers shifted quickly to hotel properties and restaurants, where costs associated with construction were relatively low.

In addition, county leaders made a conscious decision in 2006 to orient its future as an “adult playground” for wine and food for the Bay Area and the world. That plan, according to Eyler, continues to pay dividends and Napa is poised for long-term growth — assuming no major changes in demand take place.

“The large test for Napa County is when there is another recession, how that change will affect demand,” he said.

A metric of the wine, food and fun focus is the average daily hotel rate in Napa County, Eyler said. It has grown from $212 per night in December 2009 to $256 in August 2016.


With its primary strengths in life sciences and proximity to the Bay Area, Marin County has a solid foundation for the future, said Eyler, also chief economist for Marin Economic Forum.

As San Francisco and the Bay Area go, so does Marin, he said.

Marin communities have seen income and housing price growth since 2011, and the forecast is for slow and steady growth to continue, Eyler said. Ties to the greater Bay Area make Marin a place where the workforce lives, spends money and sends their children to school.

Over the last five years, almost 16,000 jobs have come back to Marin County since the Great Recession, Eyler said.


Like many of California’s rural economies, Mendocino County still has remnants of the Great Recession, characterized by slow employment growth, Eyler said. Services jobs are the main growth area. Home prices are relatively high but lag somewhat in growth behind counties like Sonoma and Napa.

The legalization of cannabis for recreational use is likely to have the largest initial North Bay effects on Mendocino County, given its history in cultivation and proximity to northern neighboring counties also with large ties to that industry today.


North Bay hill country has been attempting to recover from multiple setbacks, including the recent recession and two devastating fire seasons producing widespread damage, Eyler said.

“The industry mix in Lake County, and how its population evolves, helps to determine what economic development can do and if the local workforce will come from other places at higher wages to simply fill positions,” he said.


On the national and statewide level, U.S. core inflation is expected to grow 2.5 percent to 3 percent per year to 2019, Eyler said.

The Federal Reserve is expected to remain “dovish” about imposing interest-rate hikes through 2017, he said, but two increases may come before the end of this year. The next Fed meeting on rates is scheduled for March.

At the same time, as the state nears full employment, he said job growth will slow down with only a 1 percent growth in jobs from 2017 to 2020 as the unemployment rate reaches a steady level of approximately 5 percent by the end of the decade.

While mostly bullish about the U.S. economy, Eyler offered two caveats that could cloud an otherwise continuing recovery.

“Would trade wars cause a recession, or would a change in unemployment insurance and long-term disability provisions shock the labor supply?” he asked.

He sees the likelihood of initial claims for unemployment insurance picking up.


Eyler also expects housing markets to continue to grow along with taxable sales, growing at 2.1 percent annually 2016–2019.

Other issues that can impact the state’s economy include California’s higher minimum wage as well as lingering drought conditions, despite the arrival of recent heavy rains that have helped alleviate many years of severe water deficits.

Another major change was the passage of Proposition 64 in November 2016 allowing cannabis to be grown, distributed and sold legally for recreational purposes statewide starting Jan. 1, 2018. Eyler noted that brings with it many social and economic implications and uncertainties, from shifts in demand toward the cannabis supply chain for public safety, warehousing and office space, agricultural land, and retail.

The third key change was the election of President Donald Trump, Eyler said. That may affect local labor force availability through changes in immigration policies, impact port activity and, perhaps, touch current health care systems and residents’ private or public insurance with any unwinding of the Patient Protection and Affordable Care Act. President Trump also could rewrite an existing mortgage protection system by unwinding the Dodd-Frank Wall Street Reform and Consumer Protection Act.