Orange County business owners and executives are more optimistic heading into 2013 than they were during the final months of 2012, an improvement that comes despite concerns about the “fiscal cliff.”
The latest outlook snaps a two-quarter streak of drops in the business expectations index by California State University, Fullerton’s Mihaylo College of Business and Economics.
The survey on the first quarter—which was conducted in mid-December and is based on responses from 82 local business owners, managers and other executives—brought a reading of 75 on the index, up from 70.5 a quarter ago.
The index takes into account several factors, including projections for sales and employment, among others. A reading of 50 or above represents expectations of economic growth.
Mixed Views
The modest gain comes on mixed views from respondents.
About 83% of respondents said they expect overall business activity in Orange County to improve or stay the same during the first quarter, compared with 84% three months earlier and 89% a year ago.
More respondents said they expect growth in their own industries, however, with 48% predicting gains, up from 44% last quarter.
“I’m one of them,” said Brian Ruttencutter, chief financial officer at Cumming Corp., a construction project management and consulting firm in Aliso Viejo. “We are seeing improvements in several different sectors that are significant markets for us. We’re seeing the front end of what will be a steady growth in the hospitality industry. We continue to see growth in the healthcare industry, and more general corporate companies [are] adding to existing campuses.”
Cumming sees about $50 million in annual revenue and has more than 250 employees across 19 offices throughout the U.S. and another in the United Arab Emirates.
About 17% of survey respondents expect a dip in business in their own industries, down from a quarter-earlier reading of 18%.
The boost in sentiments came despite worries among businesses over federal gridlock on budget talks, as well as potential tax hikes and deep cuts in government spending if a deal regarding the fiscal cliff is not reached soon.
OC executives didn’t dismiss concerns about fiscal-cliff talks, which remained unsettled a of press time.
The percentage of respondents who said taxes were a chief worry going forward rose to 19.7% from 2.4% in the previous quarter.
“Obviously that’s because of the election and the high likelihood of taxes going up,” said Anil Puri, dean of the Mihaylo College and director of the quarterly index project. “These people are concerned about corporate taxes and personal taxes as well.”
Plans to Hire, Cut
More local companies are getting ready to hire in the first quarter, according to the survey, with 34.2% of respondents indicating plans to add jobs, versus 32.2% last quarter.
The number of companies expecting to make cuts also increased, though, to 11.8%, up from 7.4% last quarter.
“The two extremes have gone up,” Puri said. “More people plan to hire, and more plan to lay people off. And then those who expect no change have gone down.”
A similar divergence was found in expectations for profitability.
Half of the firms surveyed said they expect higher operating profits, compared with 44% a quarter earlier. Those who expect tighter profit margins accounted for nearly 20% of the survey pool, up from 17%. About 30% said they expect no change in the level of profits, down from 39%.
The outlook on first-quarter sales generally was rosier.
More than 55% of respondents said they expect revenue increases, versus 54.3% a quarter earlier. Those anticipating weaker sales fell to 13% from 17%. Nearly 32% of the firms are expecting little or no change, compared with 28.4%.
More than 93% of respondents said they expect OC home prices to rise, up from a quarter-earlier 90%. Of those who expect price gains, a majority anticipates increases of up to 5%, with smaller groups projecting higher increases.
The first quarter will bear a close watch and could set the stage for the rest of the year for a lot of companies, according to Ruttencutter.
“The growth trend of the first quarter will not necessarily represent how the entire year goes,” he said. “But a lot of the decisions will be made in that quarter that will lead to the next three.”
