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Quarterly Outlook Index Notches Another Gain

Orange County executives are more optimistic about the economy than they’ve been since before the recent recession, according to economists at California State University, Fullerton.

The university’s quarterly index, which gauges business expectations, hit 80.9 for the second quarter. That’s the highest mark since the start of 2007 and up from 71.4 for the first quarter.

This is the second-straight sizeable jump following an 11-point bump in the first quarter.

The latest reading and streak of momentum are in stark contrast to a tempered sentiment that held through the latter half of 2010.

“Expectations for improvement in the overall economy and Orange County are becoming more firmly anchored,” said Anil Puri, dean of the Mihaylo College of Business and Economics at Cal State Fullerton.

Puri credits the rosier sentiment to improvement in the national economy, strong corporate earnings and higher sales in the past few quarters.

The index is based on a survey of 80 executives, professionals, managers and business owners. It is designed to be a leading indicator of quarterly economic activity.

An index reading of 50 or more signals a positive outlook for the quarter.

The index reached a low of 15.2 for the first quarter of 2009, just after the financial meltdown that started in late 2008.

The high-water mark of 94.9 came in late 2004.

Business Improving

Local executives now are largely optimistic, with 88% of respondents indicating they expect business to improve or stay the same in the second quarter.

That’s up from 84% in the first quarter.

A little more than 53% expect significant or some growth in their own industry, up from 38.7% in the second quarter.

About 9% expect some drop, down from 18.7%, while 37.3% believe their industry will remain stable.

Dan Struve, chairman and chief executive of Irvine’s Helpmates Staffing Services, saw business grow at a 20% clip in the first quarter.

His forecast for the second quarter is just as bullish, helped along by a 22% jump in the number of companies looking for hires in March compared to a year ago.

Helpmates, which has five offices in Southern California, finds work for people in the accounting, finance, healthcare, logistics, distribution and back-office segments.

Longer Placements

Struve said all sectors are up and the length of work assignments has grown from 30 to 40 days a year ago to 120 days in March.

“We are seeing a little full-time placement activity,” he said. “But it is not as robust as the temporary staffing side.”

The staffing industry peaked in 2007 and plummeted in the downturn. By 2009, industrywide revenue had fallen to 1997 levels, according to Struve, a board member of the American Staffing Association.

He said his company once again is nearing 2007 revenue levels.

The Cal State Fullerton survey also showed an improved outlook for hires.

A majority of companies, 53.2%, intend to make no change in their labor force, down from 59.3% for the first quarter.

Nearly 40% intend to add employees, up from 29% in the third quarter.

The number of businesses that expect to cut jobs in the second quarter fell to 7.8%, about half the level from three months earlier.

Revenue Gains

A majority of respondents, 54.4%, expect to see revenue gains in the second quarter, up from 48.4% in the first quarter. About 38% expect little change, up from 34.1%.

Business at Irvine’s PTS Staffing Solutions has picked up in the past two quarters, and that’s expected to continue, according to Ronald Stein, vice president of business development.

PTS caters to the engineering and technical fields.

Companies are inquiring more about workers, but most of the projects are considered small by industry standards, with a lot of maintenance and touch-up work, Stein said. That could change because bidding has been more active than it was in the past few quarters, he said.

“The bidding activity is a prelude to coming events,” Stein said.

Fewer businesses expect lower sales in the second quarter at 7.6%, compared to 17.6% in the first quarter.

Santa Fe Springs-based American Relays Inc. has seen sales screech to a halt since December, puzzling Rick Lenning, vice president and general manager.

The company, which makes electronic components used in telecommunications, testing equipment, and medical devices, among others, saw a sales spike in the December quarter but “sales just fell of the table” the next month.

The manufacturers that Lenning talks to expect a big year in 2011, but still are cautious about buying raw materials without work lined up, he said.

“Companies have been burned so many times ramping up with raw materials,” Lenning said. “People are just cautious in placing raw material products until they firm up orders.”

Credit

Credit conditions, a key element of job and production growth, are getting better as 43% of executives surveyed cited some improvement, up from 33.3% in the first quarter.

“It appears that credit has started to become better and more easily available,” Puri said. “Certainly not how it was three years ago, but banks are starting to lend a little more.”

Puri said the housing market, a key economic driver here and across the county, remains a concern as the foreclosure problem hasn’t subsided.

“Until that improves the housing market will be a drain on the economy and prevent the economy from achieving fast growth,” he said. n

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