Confidence boost

Earlier this year, Petaluma technology firm Xandex, Inc. saw sales of its printer systems plunge as its semiconductor industry clients slashed spending.

Between December and February, Xandex's revenue from its specialized high-speed ink systems fell more sharply than it had in the company's 28-year history.

"But in the last three to four months, we've seen it climb steadily back up to more of a normal level," said Tim Kubes, director of sales and marketing for the 70-employee company. "It's very encouraging."

It's also no longer a rarity in Sonoma County.

Business activity and confidence in the economy are on the rebound in Sonoma County, bouncing back sharply from a winter of deep discontent.

"In general, the sense of freefall, the sense that we're heading into a depression, has ended," said Ben Stone, executive director of the county's Economic Development Board. "There is more confidence out there."

Business confidence has surged in the last six months, up sharply from its lowest level in eight years, according to a new business confidence report prepared by the economic development board.

The board's business confidence index, based on surveys with local business leaders, in February had fallen to 3.62. The index is measured on a 10-point scale, with 10 being supreme confidence and 1 representing, well, downright hopelessness.

At that time, the holiday shopping season had been a bust, home foreclosures continued to soar, credit markets remained frozen, and there were few tangible signs the federal stimulus efforts were working.

But just six months later, executives of 109 Sonoma County businesses reported significantly stronger confidence in the strength of the local economy. The index rose to 4.6, a 27 percent increase, its sharpest uptick since 2002, when nation rebounded from the shock of the 9/11 attacks.

Sectors expressing the strongest confidence were manufacturing (5.8) and retail (5.0). Bringing up the rear was the nonprofit/government sector (3.0), and real estate/construction (3.7).

Xandex's experiences perfectly track the sharp plunge and subsequent rebound in confidence experienced by the manufacturing sector.

Sales of the company's ink systems held up fine in the fall, but fell sharply in December and January, and reached a trough in February, Kubes said. Semi-conductor manufacturers, which use Xandex's specialized ink systems to mark their products during the testing process, sharply curtailed spending out of fears the economy would continue to spiral downward, Kubes said.

But after a few months, they realized that the sky hadn't fallen. Manufacturing lines continued to run, inventories of ink cartridges declined, and many quickly realized they needed to reorder products.

Sales have been on the rise ever since. That could be a good sign for the rest of the economy, because an increase in sales at companies that supply parts to factories is considered a leading indicator of a recovery, said Kubes, whose company also will soon be rolling out a line of products to optimize the performance of residential solar panels.

Lots of manufacturing firms in Sonoma County make parts for other larger companies, Stone said. When those larger firms see sales rise, it trickles down to the local level, he said. That in turn puts money in the pockets of local workers, which can translate into greater consumer confidence, which aids the retail sector, Stone said.

Interest in retail space has recently increased at Santa Rosa Plaza and Coddingtown Mall, said Laura Kozup, manager of both properties.

"I think they feel that now is an opportunity to get a favorable rate and expand," Kozup said.

The former manager of Earthworks jewelry store plans to open in the fall, and talks are under way with stores interested in leasing the former Mervyns location in the Plaza and the former Gottschalks department store at Coddingtown, Kozup said. She declined name the retailers.

Government incentives haven't hurt. The "Cash For Clunkers" program has triggered more than 250 car sales at Hansel Auto Group in less than a month, said Justin Hansel, general manager of Hansel Ford Lincoln Mercury in Santa Rosa.

It's not just big-ticket items are that are seeing strong demand.

Birkenstock Village, a shoe store in Bennett Valley, reports sales have increased steadily over the last several months. After a worse than normal post-holiday lull, sales have taken off, up 12 percent April through June, and another 16 percent in July compared to the same periods last year, said Rachel Averbuck, co-owner the store with Jenny Hale.

"The post-Christmas lull was a little more sleepy, but when it came time to wake up in the spring, people came out strong," Averbuck said.

The strength has allowed Averbuck to hire a new employee, and gives her confidence she can end the year 10 to 15 percent up, "which would be outstanding," she said.

While the signs of stabilization and potential recovery are appearing, Stone remains concerned, especially about the wine, tourism and commercial real estate markets, he said.

Weak sales of high-end wines, which have experienced strong growth for several years, threaten to depress grape prices and pressure less established wineries, he said.

A rash of new hotel rooms coming online just as the tourism industry is weakening also does not bode well for a rapid recovery in that sector, he said. When the economy does recover, it won't be to the arguably unsustainable levels the county saw in 2005, he said.

"It will be a more reasonable level of economic activity and prosperity," Stone said.