MENDOCINO COUNTY: TRENDS, FORECASTS,

AND ECONOMIC BASE

INDUSTRIES

Dr. David GalloDepartment of Economics

Center for Economic Development

California State University, Chico

Recent Trends and Forecasts

Personal income Employment Unemployment rate Population growth

Personal Income Growth: 2001-2006

2001 2002 2003 2004 2005 20060.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

MendocinoCalifornia

Employment Growth: 1999-2007

199920002001200220032004200520062007

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

MendocinoCalifornia

Unemployment Rate: 1999-2007

1999200020012002200320042005200620070.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

MendocinoCalifornia

Population Growth Rate: 1999-2007

1999 2000 2001 2002 2003 2004 2005 2006 20070.00%

0.50%

1.00%

1.50%

2.00%

2.50%

MendocinoCalifornia

Long Term Forecasts

Population growth Effect of net migration (1995-2006)

Forecasted Population Growth

Mendocino California0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

2001-072007-152015-30

Population Growth and Net Migration

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

-600

-400

-200

0

200

400

600

800

1,000

1,200

1,400

BirthsDeathsNatural increaseNet migrationTotal change

Population Growth and the Quality of Life

Population growth in Mendocino County is strongly influenced by in migration

Willingness of people to move here depends on maintaining local amenities, natural and otherwise including medical and other services

Availability and cost of appropriate housing is also important

Regional Economic Growth: How Much Remains in the Bucket?

Agricultural, Timber, and Mining Exports

Tourism Spending

Retiree Income

Retail Leakage

Federal & State Jobs & Dollars

Outside Contractors and Materials Purchases

Goods and Services Exports

Economic Base Industries

Any industry that brings dollars from outside the area

An economic base industry can involve: the production and outside sales of goods or

services (agriculture or medical services, e.g.)

activities that draw in outside spending (local production of federal or state services)

outside spending drawn to the area by the quality of local amenities (tourism, or retirees)

Tourism and Retirees

Where local goods and services are purchased with income earned outside the local area, local income is generated

The spending can be from tourists, resident retirees, or any individuals from outside the area shopping locally

Local Retail and Service Income Are Not Part of the Economic

Base

Unless sales are to non-residents, retail, services, and most residential construction are not economic base activities

The size of the economic base determines the amount of local retail, services, and construction

These activities cannot be expanded locally without an increase in economic base income

Economic Base Expansion and Economic Growth

Increase injections Expansion of local economic base industries Attract retirees or tourist spending

Reduce leakages Establish or expand businesses that supply

inputs to economic base industries Locally produce more of the goods and

services purchased by residents

Cluster Development and Economic Expansion: Industries Serve One of Two Functions

(1) Increase production and sales of products complementary with existing economic base industries: increases demand for the products of the cluster

(2) Increase local production of inputs for the economic base industry: reduces leakages from the spending stream

Example: Visitor or tourism industry (1) Schedule local events to draw additional visitors (2) Gift shop or craft sales: sales of more locally

produced goods

Output for Economic Base Industries in Mendocino County (2006)

Agriculture: Logging: $95.14 million Fruit Farming”: $53.41 million

Manufacturing: Sawmills: $147.52 million Wineries: $279.65 million Seafood Preparation and Packaging: $62.33

million Government:

State and Local Non-education: $261.12 million

State and Local Education: $84.34 Federal Non-Military: $12.64 million

Total Income Is the Sum of Direct, Indirect, and Induced Income Changes

Income: Total

Income:Locally

ProducedRetail andServices(InducedIncome)

Income: LocalProduction of

Inputs (IndirectIncome)

Income:Economic

BaseProduction

(DirectIncome)

The IMPLAN Model

The IMPLAN model is an input-output model originally designed by the U.S. Forest Service.

The model estimates the indirect (purchases from local businesses) and induced (local spending of additional income) that result from an increase in economic base activity.

The total impact is the sum of the direct, indirect and induced impacts.

Example: Sawmills in Mendocino County: Direct Income per Million Dollars in Sales

Income: Wages,Proprietor

Income, PropertyIncome, and

Indirect BusinessTaxes

Leakages:Business

Purchases ofGoods and

Services

Output: Value ofLocally

Produced Goodsand Services

LocalProduction

Value:$1,000,000

Economic Base Output and Income: Result of Sales

EconomicBase

Income:$312,140

InputPurchases:

$687,860

EqualsLess

Example: Sawmills in Mendocino County: Total Income per Million

Dollars of Sales

Income: Total$657,521

Income: LocallyProduced Retail

and Services(InducedIncome)$109,482Income: Local

Production ofInputs (Indirect

Income)$235,899

Income:Economic Base

Production(Direct Income)

$312,140

Example: Wine Production in Mendocino County: Direct Income per Million Dollars in Sales

(excluding tourism impact)

Income: Wages,Proprietor

Income, PropertyIncome, and

Indirect BusinessTaxes

Leakages:Business

Purchases ofGoods and

Services

Output: Value ofLocally

Produced Goodsand Services

LocalProduction

Value:$1,000,000

Economic Base Output and Income: Result of Sales

EconomicBase

Income:$253,106

InputPurchases:

$746,894

EqualsLess

Example: Wine Production in Mendocino County: Total Income per Million Dollars of

Sales

Income: Total$488,063

Income: LocallyProduced Retail

and Services(InducedIncome)$84,073Income: Local

Production ofInputs (Indirect

Income)$151,284

Income:Economic Base

Production(Direct Income)

$253,106

Multipliers: Output, Income, and Employment

Multipliers are calculated as the total impact divided by the direct impact

They can be calculated for output (gross value of production), income, or employment

Multipliers are larger when more of the indirect (input purchases) and induced (retail and services) activity is local or when less direct income is created per dollar of sales

Usually misinterpreted as implying that a larger multiplier means a larger local impact Income multiplier for sawmills is 2.11 Income multiplier for wine production is 1.93

Manufacturing Industry Integration and Local Economic Impact

For sawmills there is less direct local income per dollar of sales ($0.31), but significant local input purchases (indirect sales=$614,095 per million $’s in direct sales and 89% of the value of inputs are purchased locally)

Wine production generates less direct local income per dollar of sales ($0.25) and the industry generates purchases of fewer local inputs (indirect sales = $289,143 per million $’s in direct sales and currently 39% of the value of inputs are purchased locally)

Yet, given the impact on tourism (lodging, restaurant sales, etc), wineries may have a much larger impact on the local economy

Implications for Local Economic Development Plans

Economic growth is achieved through development of economic base industries

Focusing on industries where local production of inputs is feasible will generate the greatest impact on local income and employment

Additional focus should be on complementary industries: industries where products and services are used together