Bleak forecast for Sonoma County economy

A day after President Barack Obama told the nation things would get worse, local business leaders crowded into a Rohnert Park hotel to listen to an economist explain just how bad Sonoma County’s economy would get.

The news wasn’t good.

Calling his economic forecast “dreary,” Steve Cochrane said the world is suffering a once-in-a-lifetime economic crisis. He predicted Sonoma County would lose 4,200 jobs this year, home prices would continue to slide and the output of goods and services would decline dramatically.

“It’s going to be a difficult year,” said Cochrane, a senior economist at Moody’s Economy.com.

But the forecast did contain a silver lining: The county’s economy is projected to bounce back in 2011 as unemployment drops, building permits increase significantly and employers add 5,800 jobs.

But until then, the economy will struggle.

Cochrane’s forecast at the annual State of the County conference, which drew 450 people to the DoubleTree Hotel, left many with somber expressions.

“It’s a dismal picture,” said Chris Lynch, executive vice president of the Santa Rosa Chamber of Commerce.

Unemployment in the county could reach 8 percent by next year, mirroring the national trend, according to the forecast prepared for the county Economic Development Board. It would be the highest unemployment rate in the county in a quarter century.

Sonoma County’s nearly $20 billion economy, which is only a bit smaller than Vermont’s, is forecast to contract by 1 percent this year. That means the amount of goods and services collectively produced by local businesses and organizations would be $400 million less than two years ago — a staggering number equivalent to the entire grape crop of Sonoma County.

Virtually no industry will be insulated from the downturn, Cochrane said.

Of course, one of the steepest declines is occurring in the housing sector. Home prices are forecast to continue declining this year before stabilizing in 2010, when values will have plummeted nearly 47 percent below the peak attained four years earlier.

But as the median price drops to a projected low of $373,000, homes will become more affordable. And that is a painful but necessary step toward a stable market, Cochrane said.

“The economy will never get back on its feet until the housing and mortgage industries stabilize,” he said.

As the economy sinks, more people will feel financial stress. Nearly 1,300 people will file personal bankruptcy this year and 1,900 next year — an increase of 68 percent from 2008 levels. Incomes will remain basically flat this year.

Both the tourism and wine industries — often considered more insulated from downturns — will be affected as the recession goes global, and fewer foreigners visit the county or import its wines, Cochrane said.

Wednesday’s outlook came only a few weeks after a separate economic forecast by the Sonoma State University Center for Regional Economic Analysis.

The SSU forecast, prepared for The Press Democrat in December, painted a slightly different picture.

While Wednesday’s forecast expects high unemployment after the economy stops contracting in nine months, SSU predicts the economy would hit bottom several months earlier in May or June. The SSU report also forecast unemployment will not be as bad, peaking last year at an annualized 5.6 percent.

While Wednesday’s forecast envisions a more painful short-term outlook, it is far more optimistic on long-term growth. It estimates the economy will grow by 4.5 percent in 2011. The SSU forecast predicts the economy won’t grow anywhere near that fast during the next six years.

In addition to his forecast, Cochrane also unveiled the results of an economic model designed specifically for Sonoma County.

Cochrane showed Wednesday how the model could be used to calculate the impact of different scenarios on the economy, such as what effect a 10 percent tax cut would have or how much a spike in the cost of water would hurt the economy.

It turns out, nothing will have a more positive effect on the economy’s growth than investing in education, Cochrane said. And he stressed how important it is to provide more education opportunities to the county’s growing Latino population.

For example, increasing the high school graduation rates among Latino teens would boost the county’s potential economic growth by $700 million and add 5,100 jobs, according to the model’s projections.

Notably, improving just that part of the education system would have a bigger effect on the economy than the impact felt by this “once-in-a-lifetime” recession.

Conversely, not providing proper education would be detrimental to the economy, Cochrane said. His analysis comes at a time when Gov. Arnold Schwarzenegger is suggesting cuts to the education system.

The economic model Cochrane showcased is the most comprehensive analysis ever done on a county level by Moody’s Economy.com. It was spearheaded by the Sonoma County Board of Supervisors, who wanted to create an economic model and assemble a group of business leaders to take a strategic look at the county’s future.

Members of that group, dubbed the Innovation Council, said the economic model provides a road map out of hard times.

“We do have our work cut out for us,” said Randy DeCaminada, co-chairman of the group and an executive manager at PG&E. “And educational attainment is huge.”

[END_CREDIT_0]You can reach Staff Writer Nathan Halverson at 521-5494 or nathan.halverson@pressdemocrat.com. Check out his blog at DailyGeek.Pressdemocrat.com.