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Tuesday, Mar 19, 2024
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Optimism Near Peak In Quarterly OC Execs Survey

In looking out to the first quarter, Orange County executives turned up the optimism. That’s according to California State University-Fullerton’s Orange County Business Expectations Survey, which popped seven points from 88.2 to 95.2 quarter-over-quarter.

The quarterly survey measuring hiring, sales, purchasing, capital investment and profit forecasts of local business owners and senior executives had been plodding along for the past few years, 85.3 for the second quarter of 2016, inching up to 88.2 for last year’s fourth quarter. The spurt to 95.2 represents one of the highest readings of the expectations gauge since Project Director Anil Puri of the Woods Center for Economic Analysis and Forecasting has been querying industry leaders small to large. The center is part of CSUF’s Mihaylo College of Business and Economics.

“The index is near a record high, indicating expected robust regional economic growth,” Puri said. The quarter-to-quarter burst “wasn’t a total surprise, economy is on the upswing—employment and GDP are picking up.”

Survey respondents also weigh in on what they see in overall business activity, their own industries, and their biggest concerns.

Any index reading above 50 is positive and an expectation of future growth. In this last ballot, not only were hopes high to grow profit and sales, but some prior concerns were waning.

For the fourth quarter, 37% fretted about the overall economy in our increasingly tourism- and export-dependent ecosystem.

But that stress eased all the way back to 25% this time as the U.S. GDP hit 3% for two straight quarters and early reports about the holiday shopping season panned out as retail spending rose about 5%, according to a MasterCard report. One concern of OC bosses continues to gnaw—too much government regulation: up from 27.8% to 35.7%.

“Overreach of government regulation,” noted Dan Struve, owner and founder of Helpmates Staffing Services in Irvine.

“It’s inability now to ask things like a person’s salary history … it’s hazard points … a challenge for everybody.”

International competition also emerged as a potential irritant to local fortunes: up from 1.9% to 10.7%.

“A majority of surveyed business leaders were most worried about regulations or the overall economy, Puri noted, “but international competition is a rising concern.”

Local regulation and tax increases include a gas tax spike this fall and a rise in the minimum wage on Jan. 1 to $11 for employers of 26 or more (on the state minimum’s climb to $15 an hour by 2022).

And firms stepped back a bit on hiring plans, from 47.2% to 42.1% those who see adding to payrolls; 47.5% those who expect no change in workers, but 10.5% who anticipate cutting this quarter—about half of that saw job cuts in the offing in the fourth quarter.

“They’re somewhat in the process of next year’s plans—and recovery is now 10 years old,” Puri said. “Not a carefree world out there.”

Top Up; Bottom Way Up

The star of the survey, the biggest reason for the leap in the expectations index to the second-highest reading since 2002, was the belief by most execs that they could grow sales; 70.2% of survey firms said their sales should increase this quarter, compared to 63% last quarter.

“Best I’ve seen in 45 years,” Ernest Schroeder said. His Newport Beach-based Schroeder Management Inc. owns and manages about 3,000 Class B apartment units, 75% in OC, the rest in Los Angeles.

“99% occupancy last two years, Schroeder said, and another indicator is how residents are paying rent.” And they are paying. Schroeder cites a major drop in evictions and tenants trying to clean up their credit.

Filled units and fewer write-offs boost Schroeder’s bottom line, and many other survey respondents are also seeing green. Of firms surveyed, 63.2% believe they’ll boost profits in the next three months compared to 44.4% last quarter—and as alluded to above, tax reform, or the Tax Cuts and Jobs Act, was about a foregone conclusion as respondents were filling out their scorecards.

“(The profit forecast) is a big jump … when the survey was conducted, the probability of tax reform was strong,” Puri said.

Looming Threat

There’s been recent discussion about the state’s jobs-figures outfit, the California Employment Development Department, perhaps understating OC job growth. It had the November jobless rate as a paltry 2.8%, described by some as “full, full employment.” But that reflects—per EDD—relatively meager job growth, only 0.8%. The workforce here has increased by only about 4,000 since November, it says.

“We’re at the turning point, as the economy continues to expand, it’s going to put pressure on wages,” Puri said.

Dan Struve started his Irvine staffing firm in 1980. “Demand is good, orders are harder to fill—but there’s more demand than supply of skilled employees … demand side is challenged. It’s a battle for talent.”

Struve’s assiduously grown his privately owned staffing firm to 3,000 employees and eight Southern California locations providing manufacturing employees to firms like Boeing and C&D Zodiac and customer service and accounting help to clients like the big universities. But it’s become harder for Helpmates to find good help.

“It’s like anything else. Evolving work force. Technology a big piece of that, impacts every position we fill and with a labor shortage employers need to have flexibility,” Struve said. He cites a seller’s market for workers, many asking for training programs, open work environments, and the ability to work from home—on day one.

Too Much Too Little

The survey always ends with a “special question” to execs. Asked this time around to prioritize six potential threats to the U.S. economy, they didn’t waver: economic and political reform. Of respondents, 49.1% said they believe lawmakers won’t do enough—again the tax cut plan was a fait accompli, so that response was much improved from 66% at midyear. Another 16.4% believe reform may be too rapid.

“I’m not smart enough to figure out what it will mean for jobs, Struve said. “Is it really going to power employment? I don’t know.”

Overcooked or undercooked reforms are worries one and three, sandwiching OC execs’ No. 2 “keeps-me-up-at-night”—the situation on the Korean Peninsula.

Rate increases by the Federal Reserve used to rate high on the threat meter. No longer. While the Fed has hiked rates five times in the past two years, fewer than 11% of respondents cited Fed tightening as the biggest threat. The performance of China’s economy checked in at fifth at 3.9%, and less than 2% expressed anxiety over the federal debt.

The survey was based on responses from 57 senior-level executives in OC, a 15% response rate of the 400 surveyed. Thirty-six percent of companies responding employ more than 100; 35% employ 20 to 100; and 29% employ 20 or fewer.

Puri started conducting the survey in 2000.

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