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OC Execs Maintain Tempered View of Q4

Orange County business owners and executives have trimmed their outlooks for the local economy entering the fourth quarter, with mixed expectations that add up to a slight gain after a dropoff registered for the prior period, according to the latest quarterly index by California State University-Fullerton’s Mihaylo College of Business and Economics.

The school conducts a business sentiment survey of local business executives at the end of each quarter, asking for expectations for the next three months. It poses questions on general business strength, sales, profitability, hiring and investments, among other topics.

The fourth-quarter index reached 83.8, a slight increase over the third quarter’s 81.7.

A reading above 50 indicates a positive growth outlook. Local business executives had significantly higher expectations entering this year—the index was at 91.6 and 92 for the first and second quarters, respectively.

Slight Improvement

“There’s a slight improvement in overall business expectations, but the second half of 2015 is turning out to be more complicated and more troubled than the first,” said Anil Puri, dean of the Mihaylo College who oversees the quarterly survey.

This quarter’s index was based on responses from 54 executives collected during the last week of September. About 43% of the sample companies employ 100 or more workers, and 28% had fewer than 20. About 30% had 20 to 100 employees.

A quarter-over-quarter comparison shows that a bigger proportion of survey respondents this quarter said they expect “overall business activity to improve or stay the same”—90% versus 87% three months earlier.

Meanwhile, a smaller proportion indicated positive expectations for their own industries: 54% versus 73% last quarter. Those who anticipated their own industries to “remain stable” made up 39% of the respondent pool, up from 21% a quarter earlier.

Jobs Outlook Up

A larger percentage of study participants said they intend to hire: 41% versus 38% last quarter. About 54%—compared with 55% last quarter—said they will likely keep their work forces unchanged, while about 6%—down from 7%—said they plan to make cuts.

Expectations on revenue stayed about the same over the quarter.

Fifty-two percent of survey respondents, versus 50% last quarter, said they expect sales to increase in the fourth quarter; 35%, down from 38%, said they expect no change; and 13% expect lower sales, up from 12%.

Expectations on profitability dampened a bit: 42% said they expect higher profits this quarter versus 52% last quarter; 45% expect no change, versus 36%; and 13% expect lower profits, up from 12%.

The survey indicated more OC businesses are likely to make investments in inventory this quarter than they were in the previous three months. Those who said they expect inventories to increase accounted for 30% of the total pool compared with 20% a quarter earlier. Those who expect to keep inventory the same fell to 64% from 71%. Those planning to reduce inventory amounted to 6%, down from 10%.

‘Significant Factors’

The survey asked participants to indicate the “most significant factor” impacting their companies. More than half the pool—54%—said the state of the overall economy was their biggest concern, compared with 50% last quarter. Government regulation followed, at 17%, compared with 24% a quarter earlier. Labor costs were a concern for about 6% of respondents—versus 5%—and international competition was a concern for nearly 4%, down from 7%.

The CSUF survey included a “special question” that asked about the “biggest threat to the U.S. economy” from among five given choices.

Congressional inaction was No. 1, with 32%; the performance of China’s economy was No. 2, with 30%; and federal debt payment was No. 3, with 20%. About 17% of respondents chose the anticipated interest rate increase by the Federal Reserve as the key threat, and about 2% selected low oil prices.

“This is somewhat unexpected given the significant media attention paid to the expected interest rate increase,” said the CSUF report.

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