Business Confidence Report Fall 2014

2014 S O N O M AC O U N T Y

Fall 2014 Business Confidence Survey and Report

December 2014

The Sonoma County Economic Development Board (EDB), in partnership with the Sonoma County Workforce Investment Board (WIB), is pleased to present the Fall 2014 Business Confi-dence Survey and Report.

Highlights from this Business Confidence Report include:

The business confidence level for Sonoma County remains high with a score of 7.00.

The business outlook over the next six months for Sonoma County is positive in several industries. A large proportion of executives reported profits, and investments in locations andequipments, are expected to increase in the future.

The business outlook over the next six months for Sonoma County is positive in severalindustries. A large proportion of respondents believe that investments in locations &equipment and profits are expected to increase in the future.

Sonoma Countys economy continues to expand. The Economic Development BoardsPurchasing Trends Index (PTI) is now at 58.69, making this the first year that Sonoma County has scored lower than the United States since 2007. This indicates that businesses feel more economically challenged operating in Sonoma County than in the US as a whole. However, any score above 50 indicates that Sonoma Countys economy is expanding.

The Economic Development Board polls businesses on special topic questions in each

survey that are pertinent to current economic issues. This year, in partnership with the MTC(Metropolitan Transportation Commission), respondents were asked questions to helpfurther understand workforce conditions and efforts.

Thank you for your interest in the Economic Development Boards research. For additional information, questions, comments, or suggestions please contact us at (707) 565-7170 or visit www.sonomaedb.org.

Sincerely,

Pamela Chanter Ben Stone Chair Executive DirectorEconomic Development Board Economic Development Board

Board of Directors Pamela Chanter, Chair Joe Orlando, Vice Chair Libby Harvey FitzGerald

Michael Nicholls Linda Kachiu Melanie Bagby Michael Tomasini Marcos Suarez John Webley

2014 Sonoma County Economic Development Board. The Economic Development Board (EDB) believes all data contained within this report to be accurate and the most current available, but does not guarantee its accuracy or completeness. Use of data from an outside source does not represent an endorsement of any product or service by the EDB, its members or affiliates. This publication can be made available in alternative formats such as Braille, large print, audiotape, or computer disk. Please direct requests to (707) 565-7170 and allow 72 hours for your request to be processed. This report was prepared by Jordan Nagy.

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Business Confidence The business confidence level for Sonoma County remains high with a score of 7.00. Business executives were asked their perception of current economic conditions in Sonoma County on a 10-point scale, with a score of 1 repre-senting the lowest possible confidence level and 10 the highest. When asked to judge the current economic conditions solely in their industry, as opposed to Sonoma County as a whole, business executives expressed a slightly lower confi-dence with a score of 6.79.

Business confidence in Sonoma County has been strengthening since the recessionary period of 2007-08. Since hitting a low of 3.2 in the winter of 2008, confidence has soared by 113%. With confidence returned to above pre-recession levels, businesses will be more inclined to step up hiring, make capital investments, and increase production.

Comparing business executives expectations about the performance of their industry currently and over the next six months shows an optimistic trend. The survey reveals that during this period the average confidence level of Sonoma County rose to 7.13. When business owners were asked about confidence in their specific industry, the average anticipated confidence level dipped to 6.94. Industry results were also mixed, with most indicating positive change in confi-dence.

During the winter of 2014, when the EDB conducted its last business confidence survey, the six month forecasted confi-dence was 7.22 at record-high. It is certainly encouraging to see business executives more confident than anticipated while adding another successive year of growth.

Business Confidence, 2014 Q2

30

25

20

15

Freq

uenc

y of

Res

pons

e

10

5

Average Confidence Level for Sonoma

County: 7.00

01 2 3 4 5 6 7 8 9 10

Response

7 Business Confidence, 2001-2014 Q2

6

5

4

3

Summer 06 6.80

Winter 08 3.20

Fall 14 7.00

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Sonoma County Confidence Growth Within Industries

0%

-3%

-6%

-9%

-12%

-15%

Agriculture

Technology

Prof/Financial

Services

Retail/W

holesale

Distribution

Manufacturing

Hospitality

Real Estate

& Construction

Health Services

Non-Profit/

Governm

ent

Other

Current vs. Next 6 Months

Education

3%

6%

Educ

ation

Real E

stat

e &

Oth

er

Cons

truction

Tech

nology

Prof

essio

nal &

Fina

ncial S

ervic

es

Health

Ser

vices

Non

prof

it/Gov

t

Man

ufac

turin

g

Agric

ultu

re

Reta

il/Who

lesa

le

Distrib

ution

Hosp

itality

Sonoma County Confidence Within Industries 10

9

8

7

6

5

4

3

2

1

Average Confidence Level by Industry:

6.94

Industry Confidence Over the Next 6 Months

Current Industry Confidence Level

0

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www.ism.ws)

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Purchasing Trends

The Purchasing Trends Index (PTI) value for Sonoma County is 58.69. An index score above 50 indicates that theconomy is expanding. The PTI survey measures a companys performance in key industry metrics. This marks the first year in over three years that Sonoma County has scored lower than the United States. This indicates that businesses feel more economically challenged operating in Sonoma County than in the US as a whole.

By industry, hospitality has the highest PTI index value at 84.33 points, followed by manufacturing with 80.5 and tech-nology with 77.5. Businesses that identified themselves by other were primarily in the tourism, media, and transportation industries. High index values imply that these industrieperformed especially well over the last two quarters.

Breaking the PTI down into its components allows us to identify areas in which each industry did especially well and also where businesses struggled. Two components, new customer orders and production, indicated rapid expansion by scoring above a 70 in almost every industry. The magnitude of the scores in new customer orders suggests that more consumer spend-ing is the main driver of Sonoma Countys economic perfor-mance. The results in the employment component were also largely positive, with industries indicating that they are hiring more employees or providing more hours for current employees.

e

s

Purchasing Trends Index, 2005-2014 Q2

10

20

30

40

50

60

70

80

'14'13'12'11'10'09'08'07'06'05

Sonoma County National

58.7

59

Source: Institute for Supply Management (

Agric

ultu

re

Tech

nology

Reta

il/Who

lesa

le

Distrib

ution

Man

ufac

turin

g

Health

Ser

vices

Oth

er

Prof

.& F

inan

cial

Serv

ices

Hosp

itality

Real E

stat

e/

Cons

truction

Educ

ation

Non

Prof

it/

Gov

ernm

ent

PTI By Industry

0

20

40

60

80

100

PTI By Industry Metric

New Customer Supplier Orders Production Employment Deliveries Inventories

Agriculture

Technology

Prof/Financial Services

Retail/Wholesale Distribution

Manufacturing

Hospitality

Real Estate/ Construction

Health Services

Non Profit/ Government

Education

Other

500 50 50 50 50 100

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Looking Forward

The business outlook over the next six months for Sonoma County is positive in several industries. A large proportion of businesses believe that investments in locations & equipment, and profits, are expected to increase in the future. While employment and exports showed strong performance, the majority of respondents indicated that these categories would remain unchanged.

The employment outlook for education and hospitality are among the strongest of all industries, with 100% and 57.14% of business executives, respectively anticipating a hiring increase. On the other hand, non-profit and govern-ment reported a neutral outlook, with 100% predicting no change in employment.

When asked to rate the ability of their business to find qualified employees in Sonoma Countys labor force over the past 6 months, 57 percent of the business executives experienced some difficulty. While the overall labor market looked optimistic for most industries, about 30 percent of businesses, specifically in Professional and Financial Services, Health Services, and Hospitality industries, reported having experienced much difficulty in finding qualified employ-ees.

When asked about their attitude towards significant capital expenditures, the majority of business executives responded that they were moderate and cautious. Capital expenditure is important for the continued growth of infrastruc-ture and productivity of Sonoma County. Uncertainty regarding both the United States and European economies, as well as other nations, may postpone capital expenditure because businesses are not sure they will see a return on their invest-ment.

6-Month Business Outlook Increase80% Decrease

70% No Change Not Applicable

60%

50%

40%

30%

20%

10%

0% Full-time Investments Net Profits Exports

employees in Locations-Equipment

Employment Outlook by Industry

Increase Decrease No Change

Education Prof/Financial

Services Real Estate

& Construction Manufacturing

Agriculture

Health Services

Technology

Hospitality

Other Retail/Wholesale

Trade Non-Profit/

Government 0% 20% 40% 60% 80% 100%

Attitude Towards Significant Capital Expenditures

2.3% Aggressive

Moderate

Cautious

Not Applicable

47.1%

18.4%

32.2%

How would you rate the ability of your business to findqualified employees in Sonoma Countys labor force over

the past 6 months? No difficulty Some difficulty Much difficulty

Education Prof/Financial

Services Real Estate

& Construction Manufacturing

Agriculture

Health Services

Technology

Hospitality

Other Retail/Wholesale

Trade Non-Profit/

Government 0% 20% 40% 60% 80% 100%

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Special Focus - Market and Workforce Conditions

The Economic Development Board polls businesses on special topic questions in each survey that are pertinent to current economic issues. This year, in partnership with the MTC (Metropolitan Transportation Commission), respondents were asked questions to help further understand workforce conditions and efforts.

The majority of business executives expect the national unemployment rate to fall over the next six months with 56.3% anticipating a decline, 40.2% anticipating no change, and 3.45% anticipating a rise.

When business executives were asked how a higher minimum wage, at either the state or federal level, might 56.2%

impact their firm, an overwhelming number believed that there would be no change. 23.8% of business 18.8%executives anticipated a decrease and only 2.38% believed that it would cause an increase. 25%

With the MTC, business executives were asked to rank specific market, regulatory, and workforce conditions on a scale of 1-5, indicating what would be most impor-tant and impacting to job creation in the $18-$30/hr range.

The results show that some of the highest-ranked conditions were streamlined permit processing, with 35.8% of business executives ranking it as very impor-tant, and lower taxes, which 28.6% ranked it as very important as well. Some of the least concerning conditions were housing costs/availability, workforce training, and a lower cost of doing business.

How do you think the national unemploymentrate will change in the next 6 months?

Decline

No Change

Rise

56.3%40.2%

Increase

Decrease

How might a higher federal or state minimum

wage requirement impact employment

at your firm?

No Change

73.8%

23.8%

On a scale of 1-5 (1=not important, 5= very important), please rank

the following market, regulatory, and workforce conditions as you see that they might

0

5

10

15

20

25

30

35

40

Access to Capital

Lower Cost of Doing Business

Housing Costs/ Availability

Ability to Expand Markets

Streamlined Permit Processing

Lower Taxes

Workforce Training

Hiring Credits

1

2

3

4

5

contribute to increased job creation in the $18-$30/hr range

Freq

uenc

y of

Res

pons

e

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Respondent Summary

The Economic Development Board distributed 200 surveys representing 11 industry sectors in order to gather opinions about the confidence of Sonoma Countys businesses. The EDB received 87 surveys in response, for a response rate of 44%. This is a very high response rate for a mailed written survey.

The EDB attempted to survey a broad range of businesses when conducting the Business Confidence Survey. Using NAICS designations, we asked respondents to match them-selves to the industry that closest represented their business. The four most represented industries responding to the survey were Professional and Financial Services (19.5%), Retail and Wholesale Distribution (17.3%), Manufacturing (17.3%), and Real Estate & Construction (11.5%). Non-Profit & Government, Health Services and Education were the least-represented industries.

The most common business size of those that responded was in the 16-50 range. The 101-250 range had the second-highest frequency, with 24 firms reporting that many employ-ees. The third highest was the 51-100 range, with 13 firms in the category responding having that many employees. There were 11 total firms that had either 251-500 or 500+ employees. This shows a good representation of small, medium, and large businesses included in the EDBs survey.

Response Rate

Responded

Did Not Respond

44%

Total Number of Distributed Surveys:

200

Respondents by Industry

2.3%

Prof/Financial Services

Retail/Wholesale Trade

Manufacturing

Real Estate & Construction

Other

Hospitality

Health Services

Agriculture

Technology

Education

Non-Profit/Government

3.5%

19.5%

17.3%

17.3% 11.5%

9.2%

8%

8%

Number of Employees per Firm

Freq

uenc

y of

Res

pons

e

30

25

20

15

10

5

0

Number of Employees

1-15 16-50 51-100 101-250 251-500 500+

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Methodology, Sources, and Notes Note on Survey and Data

In order to get a cross-section of businesses in Sonoma County, the EDB sent surveys out to 200 business leaders in Sonoma County. We selected businesses across 11 sectors so that their opinions represent the overall economy. The EDB received 87 surveys in response for a response rate of 44%. This is a very high response rate for a mailed written survey.

The results of the survey were tabulated in house, and most reported statistics are averages, medians, or majorities. The EDB does not guarantee the accuracy of these statistics nor does the EDB guarantee that they are a factual representation of the business climate in Sonoma County. If there are errors in our methodology, sources or notes, please contact the EDB at edb@sonoma-county.org.

Note on Special Focus

The specific market, workforce, and regulatory questions were part of the 2014 Summer Business Confidence Surveys special focus with the partnership of the Metropolitan Trans-portation Commission. The special focus reports on important sector and economic issues facing Sonoma County. Previous topics have included tourism, business development, work-force availability and training. Suggestions are welcome.

Index Methodology

An index is an economic tool that is used to make general comparisons across a range of metrics.

The Sonoma County purchasing trends index is modeled after the national Purchasing Managers Index from the Institute for Supply Management (www.ism.ws). It is intended to provide a measurement for the pace at which an economy is expanding or contracting.

The national PMI uses information detailing companies new orders, production, employment, supply deliveries and inventories. Sonoma Countys index mirrors the PMI in computation. However, due to differences in compilation methodology, the two indices may not be directly comparable.

The formula for the PTI in each category is, using the responses to the question, What has happened to the following within your company in the past quarter? with regard to new customer orders, production, employment, supplier deliveries and inventories. Respondents then chose answers of Increased, Decreased, or Unchanged.

The indices for each category were then calculated by: (I + 0.5*U)/N where I is the number of people responding increased, U is the number of people responding unchanged and N is the number of people responding to this particular question. Once all of the indices have been computed, the numbers are inserted into the overall PTI formula of: PTI = 0.3 * O + 0.25 * P + 0.2 * E + 0.15 * S + 0.1 * I, where PTI = Purchasing Managers Index; O = New Customer Orders; P = Production; E = Employment; S = Supplier Deliveries; I = Inventories.

The following industries comprise the PTI: Real Estate and Construction, Manufacturing, Professional and Financial Services, Retail and Wholesale, Agriculture, Technology, Hospitality and Other.

The Sonoma County Business Confidence Index is the mean of all respondents perceptions of Sonoma Countys current economic situation on a scale of 1-10. Due to adjustments in methodology, some percentages differ from those cited in earlier Sonoma County Business Confidence reports.

Any feedback, suggestions, or comments can be directed to the Sonoma County Economic Development Board at edb@sonoma-county.org or (707)-565-7170.

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Economic Development Board 141 Stony Circle, Suite 110 Santa Rosa, CA 95401 (707) 565 -7170 www.sonomaedb.org

Sonoma County Board of Supervisors

With acknowledgement and appreciation to key local businesses that support economic development in

Sonoma County

DIRECTOR

EXECUTIVE

SPONSOR

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(1) COVER.pdf(2) Exec Summary(3) Business Confidence(4) Purchasing Trends(5) looking forward(6) special focus(7) Responders Summary(8) Methodology Sources and NotesSponsors