Orange County business owners and executives enter the second quarter with a virtually unchanged outlook on the economy, according to the latest quarterly index of business expectations published by the Mihaylo College of Business and Economics at California State University-Fullerton.
The index, which is based on a recent survey of 82 executives based here, reached 88.1, compared with 88.8 for the prior quarter and 91.6 a year earlier.
A reading above 50 generally indicates a positive outlook.
The index hit 93.9 in the third quarter of 2013, the highest level in nearly a decade.
Companies that employ more than 100 workers accounted for about 40% of the survey sample. “Midsize” firms of between 20 and 100 employees made up 38%, and those with fewer than 20 represented 22% of the pool.
The survey typically asks a range of questions of local business owners, executives and managers, including their expectations on quarterly revenues, profitability, investments in inventory and hiring.
General Business Activity
Expectations on general business activity fell slightly for the current quarter, as 91% of respondents said they expect business to improve or be flat, versus 92% last quarter.
“OC expectations are staying little changed quarter over quarter,” said Anil Puri, dean of the Mihaylo College and director of the quarterly index project. “That’s because there was no real [macroeconomic] information that emerged last quarter that was different.”
Optimism improved when participants were asked about their own industries. More than 70% of respondents said they expect “significant or some” growth in their respective business sectors, up from 66% three months ago. Nearly 8% projected some decreases, slightly down from last quarter, while 22% expect business activity to remain stable.
Employment Outlook
Employment outlook has changed over the past three months, leading more firms to report that they “intend to hold on to their employees” and fewer to plan job cuts. More than half of the respondents—55%—said they will make no changes in their labor forces, up from 49% last quarter. About 5% said they expect to reduce their workforces, down from 12%. Those planning to hire accounted for 40% of the survey pool, up slightly quarter-over-quarter.
Local executives have tempered their expectations on sales and revenues for the next three months. A smaller proportion of respondents—66% versus 70%—said they project increases in revenue, and a larger percentage—10% versus 7%—said they expect declines.
Primal Elements
“It’s kind of a crazy period right now for businesses overall,” said Scott Freeman, president of Primal Elements Inc., a Huntington Beach-based maker of soaps and personal-care products. “We’re seeing some growth. But we’re a bit pessimistic about it because we see things pick up and drop again. There are too many variables going around right now. Consumers are timid.”
Privately held Primal Elements, established in 1993 by Freeman and his wife, Faith, manufactures soaps, candles and lotions, among other products. It distributes to retailers, mostly on the East Coast through stores such as Whole Foods. It also sells internationally, including in Dubai, China, Korea and Germany. The company operates in a 19,000-square-foot facility and has 37 employees.
OC businesses’ short-term outlook on profitability has improved, with more than 51% of respondents indicating they expect higher profits through June, compared with 50% last quarter. About 39% said they estimate no changes, and about 10% said profits are likely to slip. Both figures were stable quarter-over-quarter.
Local businesses are less likely to invest in inventory and equipment than they were earlier this year, according to the survey.
Nearly 30%, versus 33% a quarter ago, said they anticipate increases in inventory and equipment spending. A majority—at 60%, up from 57%—said they plan no changes to inventory levels.
Concerns
The survey also asked executives to identify the most significant factors impacting their enterprises. The state of the overall economy remained the largest focus, at 48%, up from 42%. Government regulations were the second major concern, at 33%.
Credit availability and labor costs have become less significant concerns for local businesses. Those who are worried mainly about credit fell from 10% to 4%, and the figures for labor costs fell from 5% to 1%.
International competition, on the other hand, surfaced as a bigger concern, with 6% of respondents indicating it as their primary worry, versus 2% for the first quarter.
California vs. U.S.
The survey asked local executives to compare the pace of economic improvements in California with that of the U.S.
A larger share of respondents—38% versus 31% last quarter—said California will lag the national economy. About 41% said the state will grow faster, down from 50%.
