Orange County company executives started the fourth quarter with improved expectations for overall business activity, according to the latest quarterly index of business sentiments published by the Mihaylo College of Business and Economics at California State University-Fullerton.
The index, which is based on a survey of local executives conducted late last month, reached 85.7. That compared with 83.8 in the third quarter and 85.2 a year earlier. A reading of more than 50 indicates a generally positive outlook for the economy.
The survey typically asks questions on various topics, including expectations for sales and profits, hiring plans, and projections of inventory investments, as well as the biggest current concerns.
About 89% of respondents said they expect overall business activity to improve or hold steady, up from the third-quarter reading of 88%.
‘Good Report’
“I think it’s a good report, especially given … current geopolitical problems,” said Anil Puri, dean of the Mihaylo College and head of the quarterly business expectations survey project. “If you look at the details of different answers, you can see the sentiment is better overall. On employment, most intend to hire. Sales [and profit] expectations are brighter.”
It was the third straight quarter of improved sales expectations. Nearly 70% of the executives, up from 61% last quarter, said they expect their revenues to grow. About 13% said they expect weaker sales, down from 14%.
Executives were also more optimistic on profitability, with 63% saying they project higher profits for the rest of the year, compared with 58% last quarter. About 7% said they expect lower profits, down from 14%.
A larger share of the survey pool said they’re looking to hire in the next three months, though the majority anticipated keeping their workforces the same. Nearly 42% of the respondents—up from 35%—said they plan to hire more. About 7%—same as last quarter—said they anticipate cutting jobs.
Schroeder Optimistic
Ernest Schroeder, chief executive of Schroeder Management Co., said he’s feeling optimistic about the rest of the year for his apartment management business.
“There’s a high demand for apartment buildings with investors, interest rates are very low, [and] occupancy rates are higher than I’ve ever seen in the past 40 years,” Schroeder said.
The company manages about 2,600 units, most in Orange County. It has 140 employees, 12 in its Newport Beach headquarters.
“As far as the economics of the business are concerned, we’ll have the low interest rate situation continuing, and our occupancy is going to stay up. 2014 fourth quarter looks strong, at least in this apartment business.”
Schroeder’s positive outlook was shared by some 54% of survey respondents, who said they expect “significant or some growth” in their own industries. That was down from 65% for the third quarter and from 71% in the second quarter.
Puri called the dip “a little bit of an anomaly” against otherwise positive indications across the survey.
“Normally, people feel better about their own industry than they do about the overall economy,” he said. “But here, that’s been reversed. This is a kind of recovery that has had a lot of fits and starts. It hasn’t been very smooth. I think we’ll continue to see that pattern. Whether it’s [concerns regarding] China, Europe, or general gridlock political issues in the U.S., we just have not seen the kind of robust upswing that we have seen in previous recoveries. But it’s better than [no growth].”
Dan Feinberg, founder and president of San Clemente-based consulting firm Fein-Line Associates Inc., voiced mixed feelings about the economy generally and for California.
‘Uncertainty’
“I would like to be optimistic,” he said. “I don’t think we’re looking at a big crash or anything. We could see some business increase in the short term, but it’s so iffy. There’s a lot of uncertainty right now, and with that, you don’t necessarily have a great medium- to long-term business climate.”
Feinberg started Fein-Line in 1999 as a consulting firm to help high-technology manufacturers. Its clients include 3M, Boeing Co. and Rockwell Automation Inc.
Feinberg previously served as president of Morton Electronic Materials, a division of salt and chemical maker Morton International Inc., before the company was acquired by the Rohm & Haas Co. for $4.5 billion.
He said uncertainties around the world, including protests in Hong Kong, are contributing to business challenges at home, especially for manufacturers in California, due to rising costs of manufacturing abroad.
The CSUF survey included a question about the relative speed of economic recovery in California versus that of the U.S. Little changed from quarter to quarter, with about 38% of respondents saying California will lag the nation and 34% saying the state will grow faster.
