Orange County companies have trimmed their outlook for the next three months, with more expecting business to hold steady after two straight quarters of higher expectations, according to economists at the Mihaylo College of Business and Economics at California State University, Fullerton.
“I won’t say they have turned pessimistic—they’re lowering optimism,” said Anil Puri, dean of the Mihaylo College.
The school’s quarterly index of local business expectations fell to 72.8 for the third quarter.
It reached 90.7 last quarter, its highest mark since 2004.
The results for the third quarter put a stopper on a streak of optimism that stretched back to last December, when the index notched the first of two substantial jumps.
“Whether this is a temporary decline in business expectations or not, we can’t tell,” Puri said. “In the U.S. [and abroad], we’re not sure how the economy is behaving, especially with the uncertainty with the election. Businesses are experiencing a number of events that they can’t put their finger on. The natural reaction is to wait, postpone and hold any decision making.”
73 Execs
The index is based on a survey of 73 Orange County business owners, executives, managers and other professionals.
A reading of 50 or more indicates an outlook for improvement in the local economy.
The survey measures executives’ views on a range of categories, including overall economic growth, sales prospects and hiring plans.
“This less-optimistic view is reflected in all measures—profitability, sales and expectation of their own businesses,” Puri said.
Companies that employ more than 100 workers made up 43% of survey respondents, compared with 37% last quarter. About 31% of respondents employ between 20 and 100 workers, and another quarter have fewer than 20 employees.
“The sample for each survey varies, but larger firms are more reflected in this particular sample,” Puri said. “They are typically more concerned about the overall state of the economy and more affected by global issues.”
About 85% of respondents said they expect overall business activity to stay level or improve in the third quarter, down from 93% three months earlier.
About 46% of respondents said they expected growth in their own sectors, down from 61% in the previous quarter. That’s still up from 37% in the quarter prior.
About 14% of respondents are expecting declines in their industries, up from 8% a quarter earlier. About 39% of businesses here expect no changes, up from 29%.
Employment prospects also have “dimmed a little,” according to Cal State Fullerton’s report.
Nearly 28% of respondents said they intend to hire in the next three months, down from 40%. Two-thirds of the respondents said they’re not expecting any changes in employment in the third quarter, up from 55%. About 6% expect to cut jobs, about even with last quarter.
Colony West Business Solutions in Orange is among the respondents with plans to add jobs.
“We’ve made five new hires this year, and we expect to make another five throughout the rest of the year,” Chief Executive William Kaley said.
Colony West is an insurance broker and risk-management consulting firm with about $14 million in annual revenue. It has 20 employees in its Orange office, and about 80 at other Southern California offices.
“We have been taking on more risk and making investments in growth since early 2011,” Kaley said. “We are hiring more agents and support staff through 2012.”
The company is getting a boost from the changing landscape for healthcare.
“Our industry is benefitting from healthcare, as workers compensation rates are going up significantly, which is bringing a lot of business for us and increasing revenue on existing business,” Kaley said.
About 53% of the respondents said they’re expecting revenue growth this quarter. That’s a smaller share compared with 73% last quarter.
About 15% of businesses anticipate lower sales, up from 5% last quarter.
Expectations for profits among local businesses also are down from last quarter’s, but about the same as levels from two quarters ago.
Profits
More than 45% of respondents said they expect higher profits in the next three months, compared with 64% at the last checkpoint and 47% for the quarter prior.
Nearly 40% expect profits to hold steady, up from 29% and slightly more than 39% six months ago. Another 15% said they are expecting weaker profits, nearly double last quarter’s 8% and the same as six months ago.
The survey also asked for executives’ outlooks regarding OC housing prices.
A larger percentage of respondents said they expect home prices to rise during the rest of the year.
More than 73% said prices are likely to increase by as much as 10%, compared with 66% three months earlier.
A quarter of those surveyed said prices could fall by up to 5% through the year, down from 34% last quarter.
“We’re seeing a lot of renewed activity in the new-home industry” in sections of Southern California, said Steve Kaller, founder and chief executive of Anaheim-based Ultimate New Home Sales and Marketing Inc.
The company has 25 employees here, serving private homebuilders with sales services primarily targeting the OC, Los Angeles and San Diego markets.
