Uncertainty about the pace of the recovery has Orange County executives in a holding pattern in their outlook on the economy, according to economists at California State University, Fullerton.
The university’s quarterly index, which gauges business expectations, stood at 60 for the fourth quarter, virtually unchanged from the 60.6 mark of the third quarter.
The index, based on a survey of more than 100 executives, professionals, managers and business owners, is designed to be a leading indicator of quarterly economic activity.
Respondents still are upbeat: An index reading of 50 or more signals a positive outlook for the quarter.
But a wave of midyear caution spurred by a slow recovery and lingering unemployment continues to hold sway.
Executives are “ready to accept the fact that the economy is going to recover much more slowly than people anticipated six months ago,” said Anil Puri, dean of the Mihaylo College of Business and Economics at Cal State Fullerton. “They are cautiously watching the situation.”
The latest reading marks a continuation of a more tempered sentiment that took hold in the third quarter.
In July, the index dropped after five straight gains as expectations rebounded from the lows of the recession in early 2009.
The index reached a low of 15.2 for the first quarter of 2009, just after the financial meltdown started in late 2008.
The high of 94.9 came in late 2004.
For the fourth quarter, executives remain largely optimistic, even if their outlooks have eased from earlier in the year.
About 78% of respondents expect business activity to improve or stay the same in the fourth quarter. That’s virtually unchanged from the third quarter.
Some 35% expect significant or some growth in their own industries, down from 38% in the third quarter.
About a fifth of respondents, 22%, expect a decline in business, up from 20% in the third quarter.
The outlook for hiring improved.
A majority of companies, 58%, intend to make no change in their labor forces, down from 64% for the third quarter.
Nearly 30% intend to add employees, up from 22% in the third quarter.
Newport Beach-based Voit Real Estate Services has added more than 30 employees to its 200-person company in the past six months, said Kurt Strasmann, managing director of the real estate brokerage and a survey respondent.
Revenue is up 35% from a year ago as commercial real estate recovers, he said.
“The market is up from 2009. That was the worst by far,” Strasmann said. “Until we see job growth, we’re probably in a stable environment where things won’t get worse but they won’t get a lot better.”
Fewer businesses expect to cut jobs in the quarter, 12% versus 14.5% in the third quarter.
Companies here seem to be done with mass layoffs.
Employers in the county shed 2,300 jobs in August from July, according to the state Employment Development Department.
Government employment cuts drove the losses, while the private sector showed encouraging signs of hiring.
About 40% of businesses surveyed expect their sales to increase in the fourth quarter, compared to 46% in the third quarter.
An equal percentage, 40%, expects little change in sales, compared to 30% the prior quarter.
Only 19% expect lower sales, down from 24% in July.
The state of credit for businesses remains a worry for survey respondents.
Nearly a quarter, 24.5%, believe credit markets have improved, down from 28% in the prior quarter.
A majority, 60%, indicated no change in credit conditions, roughly the same as the prior period.
Fifteen percent indicated further deterioration in the ability to get business financing. That was up from 12.5% in the third quarter.
“Last quarter it appeared executives thought credit conditions were getting better,” Cal State Fullerton’s Puri said. “Now, they seem to feel they are no better or slightly worse. So that’s not helping matters for us.”
