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Monday, Dec 5, 2022

OC Firms’ Optimism Slips For Start of 2021: CSUF

Orange County executives’ economic outlook for their businesses remains optimistic heading into 2021, though sentiment is not as positive as it was three months ago, report economists at California State University-Fullerton.

In addition, more than three-quarters of those same execs see a return to pre-pandemic levels in their businesses within two years; many predict it will happen sooner.

CSUF’s business expectations index, or OCBX, for the first quarter of 2021 dropped to 71.6 from 80.9 in the three-month period that ended on Thursday, the quarterly survey reported last week.

A reading of above 50 indicates future growth in the economy. The school’s survey was conducted from Dec. 11-24.

“It is somewhat unexpected,” Anil Puri, director of the university’s Woods Center for Economic Analysis and Forecasting, said of the decline.

“I think the reason is the rise in COVID cases since Thanksgiving.”

Southern California has been hard hit by the surge in coronavirus infections. The number of COVID-19 patients hospitalized from coronavirus in Orange County had nearly quadrupled since Thanksgiving, the Orange County Health Care Agency said last week.

“That means slowing down businesses,” Puri said. “People have become a little more cautious given the uncertainty in regard to COVID.”

Puri also said there has also been a slower improvement in some recent economic data, speaking to the Business Journal on Dec. 28.

The CSUF business outlook index for OC previously had been trending upwards since plummeting to 22.7 for the three-month period that started April 1 as COVID-19 ravaged the world’s economies.

Business Return

A key question is when businesses will return to pre-pandemic levels. The report from the CSUF economists provides some predictions, with the numbers below rounded off.

On a cumulative basis, 80% of businesses see a return to pre-COVID levels within two years. That includes a wide range of views, with 10% of them who foresee reaching that goal by the middle of this year to 24% predicting it will happen by the end of 2022. Twenty percent say it will happen by 2023 or later.

Positive Sign

In a positive sign, the OC unadjusted unemployment rate fell to 6.4% in November, the lowest since March when the pandemic began. The OCBX survey also showed a slight increase in respondents saying they intend to increase inventory.

Puri also sees a positive impact from the settling of the presidential election.

His team said in their quarterly report that the proportion of owners, CEOs, and managers who expect overall business activity to improve or stay the same declined to 39% for the first quarter 2021 from 64% in the fourth quarter of 2020.

In other key results of the Fullerton business expectations survey:

• 56% of the executives responding expect significant or some growth—compared to 62% in the last quarter—in their own industry.

• The number of firms intending to increase their labor force was up slightly at 20% for the current three-month period.

• 35% of the firms surveyed expect their sales to increase this quarter, down from 46% in the last quarter.

• 27% of the firms surveyed expect to have higher profits over the coming three months compared to just under 44% last quarter.

Separately, Chapman University economists led by President Emeritus Jim Doti said last month that Orange County employment will make a strong comeback in 2021 while home building will pick up along with tourism and hospitality.

The Chapman economists forecast that the U.S. economy will expand 5.7% this year, recovering from a once-unthinkable 3.1% decrease in 2020.

OC Businesses Hope for Improved 2021

A selection of OC leaders offered the Business Journal their views on this year’s way forward.

Wayne Pinnell, managing partner at CPA firm Haskell & White LLP of Irvine and San Diego:

In my view, OC business leaders are feeling a bit more conservative (perhaps negative) about the near-term economy due to the persistence of the COVID-19 pandemic and the far-reaching stay-at-home-orders here in California. 

Many businesses, particularly office environments, have been able to pivot and adapt to a work-from-home regimen, albeit not always as efficient or relationship rewarding as live interactions.  Unfortunately, there are many businesses that thrive on face-to-face, human participation that are suffering and will continue to have difficulties – entertainment, travel, leisure and restaurants, just to name a few – as stay-at-home orders are expected to remain in effect for an uncertain amount of time.   

The advancement of the COVID-19 vaccine is a welcome sign, but many view the arrival of the vaccine to the general public to still be one to two quarters away, which adds to the unsettled thoughts of a quick economic recovery in the first quarter of 2021.

Rod McDermott, CEO of executive search firm McDermott + Bull in Irvine:

On a national basis, we’re seeing strength in financial services, healthcare, consumer products and private equity. Aerospace remains soft and will be down in 2020 from 2019 about 30%. 

We are starting to see some signs of life in aerospace, as companies are restructuring and demand for new leadership that can streamline operations and bring fresh ideas to a challenging market has increased. 

Jerri Rosen, CEO and founder of Working Wardrobes in Santa Ana:

As the CEO of a nonprofit that helps people get back to work, we know 2021 is going to be a very busy year.  There is so much need for our services and the staff is very ready to provide our services to those in need.  

We’ve created a number of important new campaigns for 2021 that target the most vulnerable populations we serve:

• Women dropping out of the workforce because they don’t make enough money to cover child care.

• Veterans who have hit difficult times.

• The critical needs many of our clients face like possible eviction, car repairs, utilities even food for families.

—Kevin Costelloe

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Kevin Costelloe
Kevin Costelloe
Tech reporter at Orange County Business Journal

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