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Executive Outlook Stays Down for Fourth Quarter

Concerns about the financial crisis and the national economy are keeping local business leaders pessimistic.

A survey of executive sentiment by California State University, Fullerton, is at 17.8 for the fourth quarter, the lowest in its five-year history.

While sentiment hit a new low, it’s largely unchanged from the outlook for the third quarter, which stood at 18.1.

The index suggests a weak economy for the fourth quarter, as readings below 50 indicate expectations of economic contraction.

“The index is correlated with what the economy tends to do,” said Anil Puri, dean of the College of Business and Economics at Cal State Fullerton. “There’s no question that the credit crisis is going to slow the economy.”

The results of the survey were collected just before the fire sales of Washington Mutual Inc. and Wachovia Corp. and last week’s turbulence on Wall Street. The index’s reading could be lower if the survey was done today, Puri said.

The index has fallen nearly every quarter since it produced an 83.1 reading in the first quarter of 2007. It saw its only uptick in the past seven quarters in the second quarter of this year.

The survey shows people are less optimistic about their own industries and the local economy, according to Puri.

About 38% of respondents said they felt business activity would pick up in the fourth quarter, down from 47% for the third quarter.

Thirty-five percent said they anticipate a decrease in their businesses in the current quarter. Twenty-three percent said they expect to see their businesses grow in the quarter. About a third said they believe their businesses would be stable.

About 73% of respondents said the state of the overall economy was their biggest concern, up from last quarter when 65% named it the top worry.


Distant Second

Despite a national tightening of credit with the financial crisis, the availability of credit was a distant No. 2 concern for respondents. Ten percent listed it as their top concern, up from 7% for the third quarter.

Inflation continues to decline as a worry with less than 3% citing it as the biggest problem, down from 7% in the third quarter.

Respondents citing government regulation as having the biggest impact on their business made up 5%, virtually unchanged from the third quarter’s 4%.

More than a quarter, 28%, said the financial crisis stands to have a major impact on the economy.

The majority of respondents, 57%, said the credit crisis would have a significant impact. Fifteen percent said it would have little effect.

When asked how the credit crisis would affect their own businesses, a third of the respondents said it would have a significant effect. Eight percent said it would have a major impact.

Nearly 58% of the respondents said the credit crisis would only have a moderate effect on their businesses.

Credit for real estate deals has shut down, said respondent Dolliver Frederick, chief executive of DH Frederick Securities Inc., a finance company in Newport Beach.

“Things were already tough,” he said. “But when companies started to go under, no one wanted to lend at all.”

The outlook for employment in the survey has weakened, with 58% of respondents expecting to make no changes to their workforce, up from 54% in the third quarter.

About 20% said they plan to hire in the fourth quarter, down from the third quarter’s 24%. Another 20% said they plan to lay off workers, the same as in the prior period.

Survey respondent Rick Hoegler, director of property management at Pan American Properties Inc. in Tustin, said his company is looking to add about a half dozen people in the fourth quarter to handle new contracts. Pan American now has 60 workers.

Finding workers should be easy, Hoegler said. Layoffs around the county have been bringing more people to job posting sites, he said.

After placing a Craigslist ad, Hoegler said he got 150 responses in four days, 50% more than what a similar ad fetched a year ago.

Increased sales are anticipated from 35% of the respondents. About 38% forecast little change, and 28% are expecting fewer sales.

Some 33% of the responding businesses said they expected more profits, 31% were looking for no change and 36% are anticipating a decrease.

Businesses remain cautious over building their inventories as those expecting no change in their inventories rose to 60% from 52%.

Those looking to increase their inventories declined slightly from 20% to 19%. About 20% said they’ll reduce, compared to 27% from the third quarter.

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