Business Confidence Report

Winter 2013

2013

SONOMA COUNTY

Winter 2013 Business Confidence Survey and Report
February 2013 The Sonoma County Economic Development Board (EDB), in partnership with the Sonoma County Workforce Investment Board (WIB), is pleased to present the Winter 2013 Business Confidence Survey and Report. Highlights from this Business Confidence Report include: ■ The business confidence level for Sonoma County reached a new 6-year high in the Winter of 2013 with a score of 6.36. When business executives considered their specific industry in Sonoma County, the average confidence level rose slightly to 6.39. ■ The Economic Development Board’s Purchasing Trends Index (PTI) was 70 this winter making this the second year that Sonoma County has scored higher than the United States since 2007. This indicates that business feel less economically challenged operating in Sonoma County than in the US as a whole. Any score above 50 indicates that Sonoma County’s economy is expanding. ■ There are moderate expectations for wage and salary increase over the next year with 33% of business anticipating increases of 1-2%, and 11% anticipating an increase of over 2%. An increase in wages and salaries reflects returning confidence in the economy, and will help drive demand for goods and services in Sonoma County. ■ The business outlook over the next six months for Sonoma County is positive in several industries. A large proportion of businesses reported wholesale profits and investments in locations and equipment are expected to increase in the future. Thank you for your interest in the Economic Development Board’s research. For additional information, questions, comments, or suggestions please contact us at (707) 565-7170 or visit www.sonomaedb.org.

Sincerely,

Ben Stone Executive Director

©2011 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 Matthew Liedtke.

Business Confidence
The business confidence level for Sonoma County reached a new 6-year high in the Winter of 2013 with a score of 6.36. In a survey conducted by the Economic Development Board, business executives were asked their perception of current economic conditions in Sonoma County on a 10-point scale, with a score of 1 representing 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 higher confidence with a score of 6.39. 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 nearly 100%. With confidence returned to pre-recession levels, businesses will be more inclined to step up hiring, make capital investments, and increase production. Comparing business executives’ opinion 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 rises to 6.5. When business owners where asked about confidence in their specific industry, the average anticipated confidence level dipped to 6.39. Industry results were also mixed, with several indicating no change in confidence. During the Summer of 2012, when the EDB conducted its last business confidence survey, the six month forecasted confidence was 5.3. It is certainly encouraging to see business executives more confident than anticipated while adding another successive year of growth.

Business Confidence, 2013 Q1
40 35 Frequency of Response 30 25 20 15 10 5 0 1 2 3 4 5 6 7 8 9 10 Average Confidence Level for Sonoma County: 6.36

Response

Business Confidence, 2001-2013 Q1
7 Summer ‘06 6.80 Winter ‘13 6.36

6

5

4

Winter ‘08 3.20

3

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

Sonoma County Confidence Growth Within Industries
Current vs. Next 6 Months
10% 8% 6% 4% 2% 0% -2% -4%
O

Sonoma County Confidence Within Industries
10 9 8 7 6 5 4

Current Industry Confidence Level

Industry Confidence Over the Next 6 Months

Average Confidence Level by Industry: 6.39

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www.sonomaedb.org 2

Purchasing Trends
The Purchasing Trends Index (PTI) value for Sonoma County in the Winter of 2013 was 70. An index score above 50 indicates that the economy is expanding. The PTI survey measures a company’s performance in key industry metrics over the past two quarters. This marks the second year that Sonoma County has scored higher than the United States since 2007. This indicates that business feel less economically challenged operating in Sonoma County than in the US as a whole. By industry, technology has the highest PTI index value at 79 points, followed by agriculture with 76, and the “other” category with 72. Businesses that identified themselves by “other” where primarily in the tourism, media, and transportation industries. High index values imply that these industries performed 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 each industry. The magnitude of the scores in new customers further suggests that more consumer spending is a main driver of Sonoma County’s economic performance. The results in the employment component were positive, with industries indicating that they are hiring more employees or providing more hours for current employees.
80 70 60 50 40 30 20 10 '05

Purchasing Trends Index, 2005-2013 Q1
Sonoma County National

70

'06

'07

'08

'09

'10

'11

'12

'13

Source: Institute for Supply Management (www.ism.ws)

PTI By Industry
80 70 60 50 40 30 20 10 0

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PTI By Industry Metric
New Customer Orders Agriculture Other Manufacturing Real Estate & Construction Retail/Wholesale Trade Technology Production Employment Supplier Deliveries Inventories

0

50

50

50

50

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50

Te c

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100

www.sonomaedb.org 3

Looking Forward
The business outlook over the next six months for Sonoma County is positive in several industries. A large proportion of businesses reported wholesale profits and investments in locations and equipment 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 agriculture and manufacturing are among the strongest of all industries, with 67% and 61% of business executives anticipating a hiring increase, respectively. On the other hand, health services reported a negative outlook, with 50% predicting a decrease in employment. The six month investment outlook broken down by industry shows strong expectations across the board and most notably in agriculture, and non-profits and government. About two-thirds of business executives in hospitality, technology, and manufacturing have a positive attitude towards investments over the next six months. In contrast, health service representatives reported a negative-neutral outlook. When asked their attitude toward significant capital expenditures, the majority of business executives responded that they were cautious. Capital expenditure is important for the continued growth of infrastructure and productivity of Sonoma County. Uncertainly regarding both the United States and European economies prevents capital expenditure because businesses are not sure they will return a profit on their investment.

6-Month Business Outlook
80% 70% 60% 50% 40% 30% 20% 10% 0%

Increase Decrease No Change

Full-time employees

Investments in LocationsEquipment

Net Profits

Exports

Employment Outlook by Industry
Increase
Agriculture Non-Profit/ Government Other Manufacturing Hospitality Prof/Financial Services Real Estate & Construction Retail/Wholesale Trade Technology Health Services Education 0% 20% 40% 60% 80% 100% 120%

Decrease

No Change

Attitude Towards Significant Capital Expenditures
Aggressive Moderate Cautious

Investments Outlook by Industry
Increase
Agriculture Non-Profit/ Government Other Manufacturing

Decrease

No Change

10.8%

54.5%

34.6%

Hospitality Prof/Financial Services Real Estate & Construction Retail/Wholesale Trade Technology Health Services
0% 20% 40% 60% 80% 100%

www.sonomaedb.org 4

Special Focus - Salary Projections
The Economic Development Board polls businesses on special topic questions in each survey that are pertinent to current economic issues. This survey asked about changes in wages and salaries in Sonoma County for 2013. There are moderate expectations for wage and salary increase over the next year with 33% of business anticipating increases of 1-2%, and 11% anticipating an increase of over 2%. About a third of business executives expect no change. During the recession, business shifted more responsibilities on each employee while keeping pay flat in an effort to decrease costs. An increase in wages and salaries reflects returning confidence in the economy, and will help drive demand for goods and services in Sonoma County. The majority of business executives expect the unemployment rate to fall over the next six months with 46.7% anticipating a decline, 41.1% anticipating no change, and 12.2% anticipating a rise. In the business confidence survey, the EDB asked when the economy is expected to be back on track. The economic expectations of business executives are important factors in hiring and capital expenditures. The majority believe it will be at least two years, with 32% saying 2-3 years, and another 32% saying 3+ years. Nearly 10% expect it will take less than a year.

How do you anticipate wage and salary rates to change in Sonoma County next year?
2%

11%

Less than -1% No Change 0-1%

32% 33%

1-2% 2% +

22%

How you do you predict the national unemployment rate to change in the next 6 months?

12.2% Decline

41.1%

No Change

46.7%

Rise

When do you expect the economy to be back on track? By Industry
Agriculture Non-Profit/ Government Other Manufacturing Hospitality Prof/Financial Services Real Estate & Construction Retail/Wholesale Trade Technology Health Services Education

Total
1%

3+ years 2-3 years 1-2 years 6-12 months 1-6 months
27%

8%

32%

32%

0%

20%

40%

60%

80%

100%

www.sonomaedb.org 5

Respondent Summary
The Economic Development Board distributed 234 surveys representing 11 industry sectors in order to gather opinions about the confidence of Sonoma County’s businesses. The EDB received 106 surveys in response, for a response rate of 45.2%. This is a high enough response rate to construct a snapshot of the business sentiment in Sonoma County. The EDB attempted to survey a broad range of businesses when conducting the Business Confidence Survey. Using NAICS designations, we asked respondents to match themselves to the industry that closest represented their business. The four most represented industries responding to the survey were Professional and Financial Services (17.8%), Other (16.8%), Retail and Wholesale Trade (15.9%), and Real Estate and Construction (14.0%). Agriculture, 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 51-100 range had the second highest frequency, with 22 firms reporting that many employees. The third highest was 1-15 employees, with 21 responding firms having that many employees. There were 10 total firms that had either 250-500 or 500+ employees. This shows a good representation of small, medium, and large businesses included in the EDB’s survey.

Response Rate
Responded Did Not Respond

45.2%

Total Number of Distributed Surveys: 234

Respondents by Industry
2.8% 2.8% 2.8% 1.9% 0.9%

Prof/Financial Services

17.8%
11.2% 16.8% 13.1%

Other Retail/Wholesale Trade Real Estate & Construction Manufacturing Hospitality Technology

14.0%

15.9%

Non-Profit/Government Agriculture Health Services Education

35 30
Frequency of Response

Number of Employees per Firm

25 20 15 10 5 0 1-15 16-50 51-100 101-250 251-500 500+

Number of Employees

www.sonomaedb.org 6

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 234 business leaders in Sonoma County. We selected businesses across 11 sectors so that their opinions represent the overall economy. The EDB received 106 surveys in response for a response rate of 45.2%. This is a high enough response rate to construct a snapshot of the business sentiment in Sonoma County. 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.

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 County’s 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 Manager’s 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, Retail and Wholesale, Agriculture, Technology, and Other. The Sonoma County Business Confidence Index is the mean of all respondents’ perceptions of Sonoma County’s 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.

Note on Special Focus
The economic and wage expectations questions are part of the 2013 Winter Business Confidence Survey’s special focus. The special focus reports on important sector and economic issues facing Sonoma County. Previous topics have included tourism, business development, and workforce availability and training. Suggestions are welcome.

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

www.sonomaedb.org 7

With acknowledgement and appreciation to local key businesses supporting Sonoma County Economic Development: Director

Executive

Sponsors

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RE PU B L IC

Economic Development Board 401 College Avenue, Suite D Santa Rosa, CA 95401 (707) 565-7170 www.sonomaedb.org

A G R I C U LT U R E INDUSTRY R E C R E AT I O N

Sonoma County Health Services ■ County of Sonoma Board of Supervisors