2001 promises an almost inevitable growth slowdown,or even a contraction,in Orange County’s manufacturing sector. But industry officials and observers say they aren’t ready to concede that nearly a decade of good times is over.
“Even though I expect an economic slowdown, I believe that both my company and the economy in general are in very good shape,” said William Penick, president and chief executive of Irvine-based Cartel Industries LLC, a sheet metal shop with 70 employees.
In 2000, OC makers of technology durable and other goods increased employment by 1.8%, or about 4,188 people, to 233,088 jobs, according to Chapman University. But in 2001, manufacturers are expected to add another 5,165 new jobs,growing employment at a slightly higher clip than this year.
“Our belief is that economic growth will remain the same in Orange County,” said Esmael Adibi, director of the Center and professor of economics at Chapman University. “Manufacturing should grow around 2.2%, which is lower than other industries, but very decent.”
Even so, there are storm clouds gathering for local manufacturers. Among them: a slowing national economy, higher energy prices, increased labor costs and trouble in global markets.
“Even with our recent growth, we are walking a fine line and expect a soft landing,” said Gordon Richard, an economist for the National Manufacturing Association, a Washington, D.C.-based trade group. “Most industries within the umbrella of manufacturing will experience slowed growth.”
A possible cause for concern for California manufacturers: the 50 cent increase in the minimum wage set to take effect Jan. 1. Another 50 cent increase is set to follow in January 2002.
“About 500 of our 1,000 employees earn the minimum wage, so this wage increase will affect our bottom line,” said Jim Henke, general manager of Anaheim-based SPM, a plastic injection molder that’s part of United Plastics Group Inc.
Still, Henke said, he’s optimistic about his company’s segment in 2001.
“The plastics industry is growing,” he said. “We are going to keep going forward.”
Others say a higher minimum wage isn’t a big deal for them.
“We are a high-tech industry and do not rely a lot on minimum-wage workers,” said Larry Gasir, operation manager at Huntington Beach-based Fibreform Electronics Inc. Fibreform makes machines used in assembly, boring, and bonding.
Another factor for manufacturers could be the expected passage in California of a workers’ compensation bill. Gov. Gray Davis has stated that he wants a workers’ compensation bill as soon as possible, and one is expected to go before legislators in two months.
Paul DeVries, the chief executive of Brea chair maker Sit On It Inc., said he thinks his company and its 200 employees can handle the increased costs associated with such a bill.
“This bill will increase our costs; however it will not really be that difficult to manage,” he said.
As for energy prices, manufacturers said they took steps last year to offset the rise in electric rates. Through increased efficiency and shutting off the power at certain hours, officials at Fibreform and SPM said, they were able to manage higher power costs.
Jim Goodwin, chief executive officer of Anaheim-based Taylor-Dunn Corp., a maker of utility vehicles, has cut energy costs by 30% with the help of officials from the city.
Still, the Sacramento-based California Manufacturing and Technology Association, an industry group, sees the state’s energy situation as a possible drag on the economy.
“By far the biggest concern from our members is in regard to energy,” said Gino DiCaro, a spokesman for the group. Still, he said, “While our members are always concerned with a recession, we do not believe one is coming.”
Another factor for OC manufacturers is the relatively strong U.S. dollar against the euro. Chapman’s Adibi projects that if the U.S. economy slows, the strength of the dollar should hold pat. That could provide a boost to exports, he said.
“Because of the dollar, we have had a difficult time with the European markets,” said Taylor-Dunn’s Goodwin.
Jim Fleming, chief operating officer at Santa Ana-based Pak West, which employs 300, said any talk of a slowdown or recession needs to be taken in context.
“We have become so jaded with the recent strength of the economy,” said Fleming, whose company makes boxes, office supplies and janitorial products. “The past few years, we have seen 7% growth. That is something that we cannot keep going forever. But it begs the question: what is so bad about 4% growth?”