Orange County executives have a renewed sense of optimism entering 2012, according to economists at the Mihaylo College of Business and Economics at California State University, Fullerton.
The school’s index of local business expectations for the first quarter hit 77.9 to bounce back from a two-year low of 46.3. The increase reversed two straight declines recorded over the second half of last year.
“There is a definite change in the business sentiment from the end of the year,” said Anil Puri, dean of the Mihaylo College. “There was a great deal of anxiety in the second half of 2011, and now business executives are feeling a little more secure.”
About the Index
A measure of 50 or higher on the index indicates expectations of growth in the local economy.
The index is based on a survey of 88 business owners, executives, professionals and managers.
About 37% of the firms surveyed have 100 employees or more. About 29% have fewer than 20 workers, and the rest have between 20 and 100.
The survey asked for the executives’ views on the overall economy and prospects regarding their own industries.
Almost 90% of the executives and business owners said they expect business to improve or stay the same in the first quarter, up from 67% in the previous quarter. The figure is the highest since January 2007, prior to the recent recession.
The boost in optimism for the general economic conditions compared with 37% of respondents who said they are expecting growth in their own industries.
That’s still an uptick from last quarter’s 33.8%, and the share of respondents who expect a slowing in their respective industries shrank to 11% from 32.5% over the same period.
More than 50% said they expect business in their industries to stay flat, up from about 34%.
More Sales Seen
Expectations for sales also are more positive for the coming quarter.
Half of the executives said they expect higher sales, an increase of two percentage points from three months ago.
About 9% expect lower sales, down from 20.8% for the prior survey.
“The survey has become a lot less negative,” Puri said. “That’s building the foundation for topline growth in the coming year.”
Sentiments regarding profits are similar.
The ratio of respondents expecting higher profits is 46.6%, up from 39%.
About 15% of respondents said they expect lower profits, down from 28.6% in the previous quarter.
Richard Ulmer, a 25-year veteran of Irvine-based drug maker Allergan Inc. who now serves as chief executive of Irvine-based InVitro International, said the company looks forward to a better 2012 after a tough finish to 2011.
InVitro makes laboratory test kits for non-animal testing of corrosive substances. Its products are used to manufacture industrial chemicals, cosmetics and textile manufacturing.
“When there’s a down quarter, something’s distracted our customer base,” Ulmer said. “I would see 2012—for us, anyway—picking up in the January, February and March quarter.”
Ulmer said the company is working on a regulatory study it expects to submit in March for approval.
“This will enable us to re-launch the company not only with internally generated funds, but we also hope to do small rounds of private borrowing and get ourselves a global reputation,” he said.
Concerns Linger
The much-improved outlook among local executives remains tempered with concerns over whether the economic recovery can be sustained.
“We’ve had some positive views, but we’re still very cautious about the longer-term growth,” Cal State Fullerton’s Puri said.
Better-than-expected economic indicators for the overall economy include recent gains in manufacturing and consumer spending in November, mid-December jobless claims that reached the lowest since 2008, and the latest Conference Board’s Consumer Confidence Index that rose to its highest in eight months.
But more than 90% of the respondents to the Cal State poll said the recent string of positive reports isn’t enough to affect the pace of the recovery through 2012.
“The economy has to show sustained improvement for people to think that the future growth will accelerate,” Puri said.
Employment prospects have stayed relatively unchanged from the last check.
About 56% of companies said they intend to make no changes to payroll, compared with 53.6% last quarter. Those who plan to hire more made up 33.7%, slightly down from 35.5% last quarter.
Roughly the same number of respondents—10.5%—said they plan to cut jobs. That figure is up from about 7% in the third quarter of 2011.
New Questions
The latest survey included two new questions.
One asked executives about the relative speed of recovery for California compared with the rest of the nation. More than half—54.5%—said that the state’s economy will lag the nation’s. About 18% said California will see faster growth.
The other new question sought opinions about the direction of housing prices in Orange County. Responses were split: Almost half of the respondents said they expect prices to increase as much as 5% in the coming year; about 40% said they expect prices to drop by the same margin.
“There are still problems in the number of foreclosures that are still happening,” Puri said. “That happens at the tail end of a recession.”
