The Humboldt County Economy in 2008

By Erick Eschker

Presented to Eureka Rotary Club

March 31, 2008

The Humboldt County Economy in 2008

By Erick Eschker

Department of Economics

Humboldt State University

Humboldt Economic Index

www.humboldt.edu/~indexhum

Humboldt Economic Index Sponsors

Six Sectors and Composite

• Energy

• Lumber-based manufacturing

• Employment

• Hospitality

• Retail

• Housing

• Composite

Is Humboldt County in a Recession?

• No decline in Retail or Employment

• Unemployment Rate up

• Overall Activity down due to:

–Lumber Manufacturing

–Housing sales

Retail• Based on our own survey (we’re always looking

for more data providers!)

The seasonally adjusted Retail Index is represented by the blue area in the graph above. The red line shows the four month moving average which attempts to demonstrate the overall trend in the data with less monthly volatility.

Retail Index (seasonally adjusted)

120

130

140

150

160

170

180

Employment• Very little change in overall employment• Unemployment rate has risen over the year

Housing

Composite• Decline since May• Housing and Lumber-Manufacturing the main reason

Forecast• Two local Leading Indicators show slowing

Concerns for Humboldt County

• Credit Crunch– “We are facing the most serious combination of

macroeconomic and financial stresses that the United States has faced in at least a generation, and possibly much longer than that.” Larry Summers, Economist, ex-Harvard President (March, 2008)

• State Budget Cuts– $16bil deficit– Humboldt County has higher percent government

workers than most counties

Concerns for Humboldt County

• Commercial Real Estate– “Banks with CRE concentrations should take

steps to strengthen their overall risk-management framework and maintain strong capital and loan loss allowances.” FDIC Chairman Sheila C. Bair

– This is potential problem for small/regional or California lenders

– FDIC to hire 60% more staff for anticipated bank failures

Concerns for Humboldt County• Residential Housing

–New Housing & Real Estate Index Webpage

Annual Appreciation of Inflation-adjusted Median House Price, Humboldt County

-20%

-10%

0%

10%

20%

30%

40%

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

Year

Pe

rce

nt

Source: Humboldt Economic Index

HousingWhat will happen to sales and prices

over the next few years?• More difficult to obtain a mortgage today

– Stated income, down payments, teaser rates

• Continued drop in Demand for housing– Prices and sales will fall

• Humboldt County appreciation has been similar to Central Valley, Southern California, and Northern California

Four-Quarter House Price Appreciation, OFEHO

-20%

-10%

0%

10%

20%

30%

2002

2003

2004

2005

2006

2007

Year

Appr

ecia

tion

Redding

Sacramento

San Francisco

San Jose

Santa Rosa

Twelve-Month House Price Appreciation, Case-Shiller

-20%

-10%

0%

10%

20%

30%

40%

Jan-

02

May

-02

Sep

-02

Jan-

03

May

-03

Sep

-03

Jan-

04

May

-04

Sep

-04

Jan-

05

May

-05

Sep

-05

Jan-

06

May

-06

Sep

-06

Jan-

07

May

-07

Sep

-07

Jan-

08

Year

Ap

pre

ciat

ion

Los Angeles

San Diego

San Francisco

Annual Appreciation of Median House Price and 12 month Moving Average, Humboldt County

-20%

-10%

0%

10%

20%

30%

40%20

02

2003

2004

2005

2006

2007

2008

Year

Per

cen

t

Source: Humboldt Economic Index

What are the Forecasts?

• Case-Shiller Housing futures contracts predict price drops of 23%, 18%, and 12% in Los Angeles, San Diego, and San Francisco over the next 4 ½ years

Foreclosures

• Foreclosures in Humboldt County have gone from record lows to record highs

The Humboldt County Economy in 2008

By Erick Eschker

Department of Economics

Humboldt State University

Humboldt Economic Index

www.humboldt.edu/~indexhum