Falling home and stock prices, high fuel costs and inflation have local executives spooked about the new quarter.
An index of business confidence hit a new low of 18.1 for the third quarter, according to California State University, Fullerton’s business school.
Readings below 50 indicate expectations of economic contraction for the quarter.
“We’ve really nosedived,” said Anil Puri, dean of the College of Business and Economics at Cal State Fullerton.
The low confidence mark comes after a bright spot for the second quarter when the index halted four quarters of growing pessimism with an upswing to 37.3.
The index, based on a survey of executives, business owners and managers, hit a high of 83.1 in the first quarter of 2007. Its prior low was 29.1 for the first quarter of this year.
Within the survey, 47% of respondents said they see business activity increasing or staying the same in the quarter, down from 56% for the second quarter.
Executives might not be as pessimistic as the survey suggests, according to Puri.
The week the latest survey was given out was peppered with bad economic news and a falling stock market, which may have been reflected in the responses, he said.
“Generally, executives are more optimistic,” Puri said. “They’re not the first to throw in the towel.”
Overall economic health was cited by 65% of the respondents as the most important factor affecting their outlook. That was up from 56% for the second quarter.
Inflation, taxes, credit and government regulation each got 6% to 7% of the responses as the most important factor.
In a switch, concerns about labor costs appear to be easing: “Inflation and taxes have become bigger concerns than labor,” Puri said.
About a third of respondents said they expect higher salaries, down from 47% for the second quarter. Labor costs had been a running worry in the survey during the economic expansion that began easing last year.
The employment outlook remains muted and is little changed from the second quarter. About 55% said they expect to keep jobs stable. Twenty-four percent said they’d hire more. About 20% said they anticipated laying off workers.
“We’ve been slowly adding staff,” said Cal Laird, president of Orange-based veterinarian supplier Vetrimark, who took part in the survey.
The company, which Laird started in 2003, has been slowly growing through the years and is expected to remain on track, he said.
Profits are a concern for respondents.
Fewer profits are expected by 36%, up from 28% in the second quarter. About a third said they could earn more this quarter, down from 40% in the last survey. About a third said they expect no change.
“It’s testy at every level,” said Dan Harkey, president of Aliso Viejo-based commercial real estate lender Point Center Financial Inc.
Point Center recently has let 30 people go, Harkey said. The company can’t get any smaller than the 40 workers it has now, he said.
Harkey said he’s hoping the economy will begin to turn around by the end of the year.
Cautious outlooks also prevail about product stockpiles, as more than a quarter of respondents said they would cut back on inventory. About half said they would leave them unchanged, down from 65% for the second quarter.
