Orange County executives start 2011 feeling the most optimistic about the economy in years, according to economists at California State University, Fullerton.
The university’s quarterly index, which gauges business expectations, hit 71.4 for the first quarter, the highest level since early 2007.
The reading is up from 60 at the start of the fourth quarter, ending a largely sideways pattern for the index in 2010.
The index, based on a survey of more than 90 executives, professionals, managers and business owners, is designed to be a leading indicator of quarterly economic activity.
A reading of 50 or more signals a positive outlook for the quarter.
The index has closely tracked the economy. It started declining in early 2007 and hit a low of 15.2 for the first quarter of 2009, just after the financial meltdown started in late 2008.
Its high of 94.9 came in late 2004, amid the housing and larger economic boom.
Expectations for the first quarter haven’t been this upbeat since the days before the mortgage meltdown, bailouts and furloughs became household terms.
Caution Eases
A significant change in business sentiment occurred late in the fourth quarter as the hangover of midyear caution began to ease, said Anil Puri, dean of the Mihaylo College of Business and Economics at Cal State Fullerton.
“This may finally signal a turning of the corner for business and for the economy,” he said. “I think there will be a steady improvement throughout the year.”
About 84% of respondents said they expect business to improve or stay the same in the first quarter, up from 78% for the fourth quarter.
Huntington Beach-based Home Run Media Group, which provides marketing services for trade shows, shares in the growing sense of momentum.
The company finished last year on a positive note with demand from local businesses for print and digital media and signs.
“I’m seeing small pieces of business popping up that have been gone the last couple of years,” Chief Executive Patrick Brenden said. “Some of our customers that have been dormant are coming back to life.”
Marketing budgets were among the first casualties of the downturn, so the resurgence among Home Run Media’s clients could signal a recovery that goes beyond the company.
Growth Seen
Nearly 40% of respondents said they expect significant or some growth in their industry. That’s up from 35% for the fourth quarter.
Less than a fifth of respondents, 18.7%, said they expect a decline in business, down from 22% in the fourth quarter.
Some residual caution likely stems from the picture on jobs, a lagging but key economic indicator in the recovery.
Projections for employment remain on the downside, according to the survey.
A majority of companies, 59.3%, intend to make no change in their labor force. That’s virtually unchanged from the fourth quarter.
About 26% intend to add workers, down from 29.6% in the fourth quarter. Fourteen percent expect to cut jobs, up from 12.2%.
The results reflect stubborn concern about hiring in the wake of the sizeable layoffs of recent years. That will keep the recovery on a modest pace for the next two or three years, Puri said.
“It is still going to take time because employers aren’t ready to start hiring people,” he said. “But they do expect to improve sales in the coming quarter.”
Some hiring is under way. Employers here added 19,100 jobs in November from a year earlier, a 1.4% gain, according to the state Employment Development Department.
Employers added 1,600 jobs in November from October with seasonal hiring.
The gains weren’t enough to lower the county’s unemployment rate, which grew slightly to 9.3% in November from October as more job seekers entered the market.
Sales First, Then Jobs
Stronger gains in employment are expected after sustained growth in sales. That could be on track, according to the survey.
About 48% of businesses surveyed expect their sales to increase in the first quarter, up from 40% at the start of the fourth quarter. About a third expect little change in sales, compared to 40% for the prior quarter.
Only 17.6% expect lower sales, down from 19% for the fourth quarter.
“Things have gotten a lot better,” said Jerry Holdner, vice president of market research at real estate brokerage Voit Real Estate Services in Newport Beach. “It’s nice to see demand increasing.”
Sales and leases brokered by Voit are up since early September, Holdner said.
“A lot of tenants want to do longer leases, which is the start of confidence picking up,” he said. “Two years ago, they wanted to do a one-year lease because they didn’t know if their business would make it.”
The credit crunch that hit many businesses in the downturn seems to be improving, too.
Better on Credit
A third of respondents saw some improvement in credit conditions, up from 24.5% in the fourth quarter. A majority, 56.7%, indicated no change in credit conditions, down slightly from 60.2% the prior quarter.
Only 10% indicated further deterioration in the ability to get business financing.
A fraction of respondents, 3.3%, listed credit availability as their main concern, far behind the overall economy at 70.3% and government regulation at 16.5%.
