Executives See the O.C. Economy Brightening

IRVINE — Orange County business executives have painted the rosiest picture of the local economy in the 11-year history of UC Irvine’s closely watched annual economic survey, a university economist said.

The majority of the 222 top executives interviewed at the end of 1996 said they expected their companies to improve financially and hire more workers this year, said Dennis Aigner, dean of UCI’s Graduate School of Management. Most also said their operations will expand in coming years.

Aigner said that 86% of the executives expected their businesses to perform at least somewhat better this year. About 70% of the executives said their companies had done better in 1996 than 1995.

“It’s the most optimistic forecast we’ve seen in a long time,” Aigner said. The early results also show that Orange County employers are more upbeat about hiring than they have been in years, Aigner said. Of those responding, 53% said they would hire more workers this year.

The results translate into overall employment growth of 4% for the county this year--a very bullish outlook that outstrips other predictions of strong jobs growth.

In its closely followed economic forecast in December, for instance, Chapman University’s Center for Economic Research predicted a 2.7% increase in payroll employment in the county in 1997.

UCI is scheduled to release complete survey results in late February, but Aigner provided a preview of the findings Wednesday evening at a business forecast conference co-sponsored by UCI, the University of Chicago’s Graduate School of Business and UCLA’s John E. Anderson Graduate School of Management.

After reaching a low point during the recession in 1991, executives’ outlook for the Orange County economy has steadily improved, Aigner said.

The most optimistic responses to the survey came from executives in the financial, insurance, real estate, manufacturing and business services sectors, Aigner said. Retail and wholesale trade business people were the least sanguine, which could be due to high consumer debt levels dampening expectations for consumer spending, he said.

Of the businesses responding, 82% said they were at least somewhat likely to expand their operations in Orange County in the next five years, compared with 54% in 1996.

The percentage of those surveyed who said they were at least somewhat likely to relocate declined moderately, to about 30%, Aigner said. Also significant, he added, was that only 32% said they had been contacted by other states about relocating, compared to about 50% a year ago.

Aigner also observed that the steep declines in the manufacturing sector of the past several years appear to have stopped, and small companies are poised to lead the sector out of the doldrums.

“The small manufacturing sector seems to be in for a very, very big year in terms of employment,” he said.

Some barriers to doing business in Orange County were noted by executives, Aigner said. They included high housing costs, state and local taxes and other burdensome costs.

Orange County’s municipal bankruptcy was not a major factor in business performance, Aigner said.

A bigger concern was that “it’s a mixed bag in terms of what kind of jobs are being created.”

About 60% of the more than 60,000 jobs created from 1993 through 1996 were in the service sector. Such jobs tend to be lower paying than those in manufacturing, and therefore don’t bode well for home price appreciation, he said.

Presenting the outlook for all of California, Larry Kimbell, director of UCLA’s Business Forecasting Project, predicted that the state economy would grow by 3.1% in 1997, slowing to 2.3% in 1998 and 1.9% in 1999. That follows growth of 2.8% in 1996.

Personal income in the state will jump 6.9% this year, he predicted, followed by increases of about 3% a year for the remainder of the decade.

Employment growth in the state, which has lagged the rest of the country for the last few years, should slightly outpace the national rate this year, Kimbell said. However, building permits for residential construction remain flat, and “aerospace is down and will never recover.”

The trend of more people leaving the state than moving here is reversing, he said. But a big concern for the future is that in coming years baby boomers will begin retiring and there will be fewer young people to replace them.

“We need more young workers,” Kimbell said. “How do we get more young workers in Orange County and California?”

On the national front, John Huizinga, deputy dean of the University of Chicago’s Graduate School of Business, said the biggest worry for 1997 is skyrocketing energy prices. Increases of the magnitude seen recently have in the past slowed the economy, he said.

Huizinga predicted a “bland” national growth rate of 2.1% in 1997, but if energy prices soar higher, it could go lower, he said.

Although some economists have expressed concern over businesses building up inventories, Huizinga said it’s too early to issue a warning flag.

But he expressed some optimism over recent research concluding that the consumer price index--the commonly used barometer of inflation--overstates the rate of inflation. He believes a movement to improve measurement of the economy, taken together with the current political quest to reduce the national deficit, would be “a good thing.”

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Expansive Outlook

The vast majority of county business leaders see increased activity during the next five years. Percent saying it is at least somewhat likely that their operations will expand during the next five years:

1993: 33%

1994: 30%

1995: 42%

1996: 54%

1997: 82%

Source: UCI Executive Survey