Orange County business owners and executives remain upbeat about prospects for the year’s final quarter despite a second-straight dip in California State University, Fullerton’s quarterly index of business sentiment.
A report on fourth-quarter expectations, issued last week by the school’s Mihaylo College of Business and Economics, fell slightly to 70.5. That compares with a 72.8 reading in the previous quarter, though any number above 50 indicates an expectation for improved business.
The index reached 90.7 in April, its highest point since 2004.
Expectations for the fourth quarter remain higher than at the same time last year, when the index hit 46.3 after falling from 70 in the quarter prior. The latest survey was based on responses from 82 business owners, executives, managers and others.
About 84% of respondents said they expect overall business to improve or stay the same through December. That’s down from 85% a quarter earlier and 93% two quarters ago.
The survey also asked for respondents’ expectations for their own business sector, with 44% predicting outright growth in their sector compared with 46% three months ago. About 18% predicted some decline, compared with 14% a quarter earlier. About 37% of respondents said their sectors will remain stable, down from 39% previously.
“I responded more positively on this survey, because my growth is positive,” said Ernest Schroeder, president of Corona del Mar-based apartment-management firm Schroeder Management Co. “But the general economy is not going to come back until we get a more solid job market. OC is a strong economy, and it’s an area that has a lot of potential growth, but it’s getting held back right now.”
The company has 120 employees total and oversees 2,400 units. Business has gotten a boost over recent years with a boom in the market for residential rentals.
“This is the strongest rental market I’ve seen in 40 years,” Schroeder said. “We have a 99% occupancy rate right now.”
Hiring Outlook
Outlooks on hiring have changed, with slightly more respondents decided on plans to add or lay off workers.
“It’s interesting to see that overall there’s still intent to hire more people, even if they may not be too optimistic,” said Anil Puri, dean of Mihaylo College. “More people are having opinions, and fewer are uncertain.”
The survey showed 32% of respondents expect to hire during the current quarter, compared with 28% in the quarter-ago survey. The proportion of those who expect to shrink their work force inched up to 7% from about 6% last quarter. Almost 61% said they won’t be making any changes, a drop from 67% last quarter.
A similar pattern showed up in business owners’ estimates for revenues.
A slightly bigger slice—at 54%—said they expected sales to increase this quarter, compared with 53% last quarter. More than 17% of businesses said they expect lower sales, up from 15% last quarter. That left a smaller portion of respondents—28% versus 32%—who predicted no changes in revenue.
Expectations for profits declined a bit, with 44% of firms expecting higher earnings, down from 45% in the prior survey. Narrower profits were forecast by 17% of the respondents, up by two percentage points from a quarter earlier.
The survey asked business leaders to indicate key factors affecting their companies.
Anxieties
The state of the overall economy remained a major concern for most, despite a drop in the proportion to 55% from 69% last quarter. There was more anxiety about government regulation—almost 30% of respondents chose that as their primary concern, up from 16% last quarter.
“There’s a huge jump in concern over government regulation, which I think is hugely driven by what’s happening in the election campaign,” Puri said.
Fred Helms, who heads commercial banking in OC as senior vice president at the Newport Beach office of Minneapolis-based U.S. Bancorp, said concern about elections has left “a lot of companies taking a wait-and-see approach,” delaying some decisions.
“There is also concern about potential increases in tax structure, so I’ve seen companies laying the groundwork before the end of the year,” Helms said.
Other topics of concern included credit availability and international competition.
The survey also included a question about the future of Orange County housing prices.
“Compared to two quarters ago, the sentiment has shifted dramatically in favor of expectation of price increases,” Puri said.
Roughly 90% of respondents said they think home prices will rise overall, with a bulk of them expecting a price increase of up to 5%. That compares with a quarter earlier, when 75% of respondents expected an increase in home prices.
Those who expect price declines made up 10% of the latest survey sample, down from 25% last quarter.
