Orange County business leaders say political turbulence in the nation’s capital creates the biggest threat to their businesses as employment growth slows and home price hikes are set to be “restrained at best,” according to California State University-Fullerton forecasters.
Still, OC has managed to resist the “generally dourer mood” hitting the rest of the country, and companies here see little to worry about in the near term, said Anil Puri and Mira Farka, both of whom head the university’s Woods Center for Economic Analysis and Forecasting.
Puri told an audience of 700 at the Hotel Irvine on Oct. 30 that the researchers asked businesspeople in OC what they see as the biggest risk for their companies.
“The biggest threat that they mentioned is political turbulence—the infighting that never seems to end in Washington, D.C.”
Executives in Orange County are also worried about trade and tariffs, as well as interest rates, Puri said in summarizing parts of the forecast.
The duo also project job growth of 25,500 this year, or a gain of only 1.5% in Orange County. That will slow to 0.9%, or 16,000 new jobs next year, and a further reduction to 14,300 or 0.8% gain in 2021.
Jobs grew 2% to 1.65 million workers in 2018.
The report also predicted that “home price appreciation will be restrained at best, 2% or less for Orange County and the Southern California region.”
Puri sees OC median home prices rising less than 1% this year.
“Approximately, 45,000 construction permits are expected to be issued in 2019 for Southern California, but then decline at somewhat lower levels for the next two years,” according to the Woods Center report.
After a difficult summer, U.S. stock markets have been showing more strength, as the U.S. and China appear to be making progress in reducing their bilateral trade tensions. While there are signs the global economy is slowing, the U.S. unemployment rate fell to 3.5%, the lowest rate since December 1969.
Orange County’s unemployment rate plummeted to 2.4% in September compared with 2.8% a year earlier. Orange County’s lowest ever rate was 2.2% in December 1999.
Avoiding Recession
“Our baseline scenario is that, while flirting dangerously close to recession over the next 12 to 18 months, the U.S. economy will manage to escape it, but just barely,” the Fullerton researchers said.
Puri and Farka predict 2019 will end with 2.3% economic expansion, slightly less than Chapman University’s prediction of 2.4% in June. The Fullerton researchers foresee a slowing to 1.8% expansion next year and a pickup to 2% in 2021.
“When asked about the probability of recession by 2020, more than 60% stated that it was 20% or less,” according to the report.
The Woods Center’s Farka said during the forecast presentation there is no U.S. recession on the “immediate forecast horizon,” but said “global conflicts” headed by the U.S.-China trade dispute are a major source of concern, as are the Fed’s interest rate policies.
The Woods Center’s previously released Orange County Business Expectations survey showed local sentiment as of September was at 90.9, significantly lower than the year-ago period, but higher than the 87.1 measured from July through September of this year.
A reading over 50 in the expectations survey makes a sign of confidence.
The Fullerton researchers took issue with California’s Employment Development Department (EDD), saying the government officials were “grossly underestimating” the employment growth in Orange County, as well as in other counties in the region.
Jobs Growth
“Though employment growth in the county and surrounding area has indeed slowed down, it is not as much as the EDD numbers would indicate,” they said.
Local OC businesses often say they have trouble finding people to fill open job slots.
“We’re at that portion of the business cycle where Orange County firms are just facing the tightest labor market in recent memory,” Joe Brusuelas, chief economist at accounting, tax and consulting firm RSM US, told the Business Journal in September. “The No. 1 challenge for all of our clients is finding those workers.”
Separately, Scott Maccabe, the CEO of Lake Forest-based Toshiba America Business Solutions, told the Business Journal his company’s headcount is “pretty stable” in part because “it’s a very difficult market to hire people.”
