Orange County business executives are entering the second quarter with the highest level of optimism in nearly a decade, according to the latest quarterly index of business outlook from California State University, Fullerton.
The index, calculated by the school’s Mihaylo College of Business and Economics, hit 91.6 for the second quarter, the highest mark since July 2004. It’s up from 75 in the prior quarter and 90.7 a year earlier.
A reading higher than 50 represents expectations of growth in the economy.
Cal State Fullerton’s survey typically asks for participants’ short-term expectations in a number of areas, including sales, profits, hiring and inventory. The latest was based on responses from 65 local business owners, executives, managers and others.
“Their confidence level is the highest compared to even before the recession,” said Anil Puri, dean of the Mihaylo College and director of the quarterly index project. “They’re building inventory, planning to hire more people … so it’s a significant improvement overall. I think an important change has been the lowering of uncertainty” after the Obama administration reached an agreement on tax rates shortly after the start of the year.
95%
About 95% of respondents said they expect overall business activity to remain steady or improve. That compares with 83% for the first quarter.
The outlook was similar when respondents were asked to consider their own business sectors. More than 95%—compared with 83% last quarter—said they expect a steady pace of business or growth in their respective industries.
The outlook on employment prospects also improved.
Nearly 45% of respondents said they intend to hire in the second quarter, up from 34% last quarter.
The proportion of companies looking to cut jobs decreased to 6% from 12%.
Projections for revenue and profits also are up. About 60% of the firms surveyed said they expect increases in sales in the next three months, compared with 55% last quarter. Only about 1% of respondents said they expect sales to decline, versus 13% in the first quarter.
More than 55% of respondents said they expect gains in profits, compared with 50% a quarter ago. About 6% said they expect to see lower profits, compared with nearly 20%.
OC companies appear more willing to make investments in equipment and inventories this quarter.
The share of respondents who said they expect to increase inventories moved up to 42% from 29% a quarter earlier. About 5% projected a decline in inventories, compared with 11% the prior quarter.
Puri called the changes “quite a turnaround from last quarter,” when the survey reflected increases in both “extremes”—those expecting significant business growth, as well as those anticipating challenging months ahead.
Concerns
Macroeconomic and political issues still remain concerns for business executives, even with the rosier outlook in general.
“There’s a more positive feeling about the economy, which is evident in the survey … but you still have some of these uncertainties hanging over people’s heads … both from the business side and personal side,” said Vic Hausmaninger, founding partner of HBLA Certified Public Accountants Inc. in Irvine. “One is the uncertainty of taxation. We have an act that was passed, but there’s still constant discussion going on about changing the rates and deductions. You also have the issue having to do with … [healthcare insurance]. Even small companies that are exempt from [new regulations under federal reform] are concerned about what it will do to insurance premiums.”
About a third of survey respondents said government regulation was the “most significant factor” affecting their companies.
Another 49% pointed to the state of the overall economy as their biggest concern. The proportion of those most concerned about taxes dropped to 6% from nearly 20% in the first-quarter survey, which was conducted before officials in Washington reached an agreement.
The survey also included a question about housing prices for the rest of this year. About 94% of the respondents—compared with 87% a quarter ago—said they forecast price increases of up to 10% this year. About 2% said home prices are likely to fall, versus 7% a quarter ago.
“Housing is picking up, and it’s a big deal,” Hausmaninger said. “People in OC can feel more strong and positive about what’s going on here. We’re in a good market with various industries.”
