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Local Confidence Jumps Again for Q2

Optimism about the economy continues to grow along with plans for hiring among Orange County businesses, according to economists at the Mihaylo College of Business and Economics at California State University, Fullerton.

The school’s quarterly index of local business expectations jumped to 90.7 for the second quarter from 77.9 three months ago.

It’s the second-straight significant quarterly increase, and puts the reading at nearly double a two-year low notched for last year’s fourth quarter, when confidence in the current economic recovery stalled.

“It’s really a dramatic change in sentiment,” Anil Puri, dean of the Mihaylo College, said about the second-quarter outlook, which rose to a level last seen in 2004.

The index is based on a survey of 77 business owners, executives, professionals and managers.

A composite reading of 50 or higher indicates expectations of future growth in the local economy.

Companies with more than 100 workers accounted for 38% of the responses to the survey. Another 33% of respondents have between 20 and 100 employees. About 29% have fewer than 20 workers.

Expectations

The survey measures expectations for revenue, profit, hiring and housing prices in Orange County, among other aspects of the local economy.

About 93% of respondents said they expect overall business activity to stay the same or improve in the second quarter, up from 89% three months ago. The percentage is the highest since October 2004.

The overall growth outlook started with confidence about the respondents’ own areas of business. Respondents who said they expected growth in their own industries accounted for 61% of those who see the same for OC’s economy overall. That’s up from 37% in the previous quarter.

About 8% of respondents said they expect some decrease in their industries, compared with 12% last quarter.

About 29% said activity in their respective industries will remain flat, down from 51%.

New Hires

More than 40% of the respondents said they plan new hires, up from 34% last quarter. About 5% expect to make cuts, compared with 10% last quarter.

“Overall the survey has been pretty accurate in projecting employment growth in the future,” Puri said. “This indicates growth in employment in Orange County for the next [few quarters], at least.”

Dan Struve, chief executive of Irvine-based Helpmates Staffing Services, said the improved picture on hiring has turned the tables from recent years of recession and a spotty recovery.

“We have more clients coming to us with orders [for employees] than the other way around, when we had all kinds of candidates with no orders,” he said.

The firm provides companies with temporary help, temporary-to-hire workers, and project-based employees, among other things. It has 18 employees in the Irvine office, with four other locations throughout Southern California.

Struve said there is still some ways to go on the current recovery. Full-time placement hasn’t been up to the paces seen following past recessions because companies are still sticking with temporary hires.

“That’s a function of marketplace uncertainty, and people are being flexible,” he said. “They’re being more cautionary.”

Even companies that remain uncertain appear to have moved beyond cutbacks, though.

“As insurance brokers, we look at a lot of different industries, and we’re not seeing any more decreases in expected payroll,” said Bill Tutton, president of Tutton Insurance Services Inc. in Santa Ana.

The firm has 48 employees and about $8.5 million in revenue.

The outlook on hiring reflects improved expectations on sales and profit.

Expectations for revenue are substantially higher for the second quarter than the prior period.

Higher Sales

More than 72% of respondents said they expect higher sales, compared with 50% three months ago. About 22% said they expect no change, down from 41%.

About 5% anticipate weaker sales, down from 9% a quarter earlier and 21% for the final quarter of 2011.

Newport Beach-based accounting firm DBBMcKennon is seeing growth so far this year, and it’s planning on further investments.

“Revenues and staffing are up about 10% in 2012 over the prior-year comparable period,” said Michael McKennon, founding partner. “In the fourth quarter of 2011, our firm invested in a new cloud-based software improving productivity. We plan to make capital expenditures in the summer of 2012 for increased staffing, as well as to enhance productivity further. All capital investment will be paid from cash on hand.”

Expectations for profitability among Orange County businesses also are up.

Nearly two-thirds—64%—of respondents said they expect higher profits in the next three months. That compares with 47% last quarter.

About 29% expected profits to hold steady from last quarter, down from 39%. Another 8% said they expect lower profits, down from about 15% three months ago.

The Cal State Fullerton survey also asked for executives’ opinions regarding California’s economic recovery in comparison to the nation.

About 23% said they expect California to outpace the nation, up from 18% the prior quarter.

There also was an increase in the percentage of people who expect California to lag the nation.

“That was a little bit of an odd result,” Cal State Fullerton’s Puri said. “Even though businesses feel good about the overall state of the economy, they’re still down on California’s growth.”

That could reflect the state’s chronic budget deficits or regulation, both of which are among the biggest concerns of the business owners, he said.

Housing Prices

The survey also asked for expectations of future Orange County housing prices.

About 34% think that prices will drop by 5% or more in the next year. Nearly 58% said home prices will rise by up to 5%. A smaller pool said prices will rise between 5% and 10%.

None expected any bigger increases.

“The housing market nationally isn’t moving much,” Puri said. “People here are thinking slightly more positively for the state of the housing market, but they still don’t think much will happen.”

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