Local to Carmel there are two yarn stores (or at least ones that I found within easy striking distance)
Carmel has no street addresses. This is relevant because it means that you actually have to watch street signs (painted on posts stitcking up no more than four feet on corners) to figure out where you are. Having found the website for Knitting-by-the-Sea really helped since one has to sort of figure out which road, which direction on said road and then spot the place as you saunter by on the other side of the street.
It is a nice, bright shop with a decent amount of yarn on hand and a cheerful proprietor with a goodly number of years in this location. The centrally placed table means that you can sit and knit while yarns sneakily call to you for fondling and purchase. Buttons, magazines and needles abound.
In Monterey there is The Twisted Stitch. Dawn is a UK transplant who has been in the area for more than a few years; opening the shop just about two years ago. Not having my camera with – you will just have to rely on Google for a map. Located close to the Monterey Aquarium there is on street heavily metered parking. (Trust me, the meter maid just circles the block….)
She has a nice selection of books and knitting needles, the yarn shelves were a bit bare when I stopped by. Open till 1900 really helped as we stopped in after dinner.