Business Outlook for First Quarter Sees Sharp Uptick
By RAJIV VYAS
Orange County businesses are in a jollier mood going into the first quarter than a year ago.
In fact, OC businesspeople are as optimistic as they’ve been in nearly a year, according to a California State University, Fullerton survey done in association with the Business Journal in mid-December.
The Orange County Business Expectations Index jumped to 79 for the first quarter, up from 52.6 in the fourth quarter. That’s the highest reading in nine months and second-highest since the inaugural survey last January.
The index is a ratio of businesspeople who think the economy will improve or hold stable to those who think it will worsen. A number higher than 50 means more businesses feel the economy is likely to expand.
The index’s reading for the first quarter easily beats the dour 47.5 showing for the first quarter of 2002.
“There has been a substantial improvement after a very depressed situation,” said Anil Puri, dean of the College of Business and Economics at Cal State Fullerton and director of the survey. “It’s a sign of relief that nothing terrible happened.”
The index’s highest reading was 83.5 in April. But that proved to be false hope as sentiment retrenched to 62.2 in July.
Some survey highlights: 89% of business owners, chief executives and managers surveyed expect overall business activity to improve or stay the same in the next three months, up from 74% in October and 78% in July.
“The rise indicates that some of the uncertainties with the auditing issues have been resolved,” Puri said. “The holidays have not been great, but just OK. The war with Iraq could still happen and hence there is some restraint in inventories.”
But businesses still are cautious when it comes to hiring or increasing inventory to meet future product demand.
“One should not jump to the conclusion that Orange County will have a rapid growth,” Puri warned. “That is still a quarter or two away, and won’t happen until the Iraq situation is resolved.”
Hiring will remain weak in the first quarter: 58% of respondents said they don’t plan to add workers in the period, though that’s better than the 66% for the prior quarter. The share of companies that intend to hire more workers rose to 29% from 20%.
Perhaps a reflection of rising healthcare and workers’ compensation costs, companies expect labor costs to go up, despite the tepid jobs outlook.
Fifty one percent of respondents said their labor costs probably would be higher in the first quarter than they were in the fourth quarter. In October, only 38% of those surveyed said their labor costs would rise sequentially.
Businesspeople also were responding to the state budget crunch and the rising chance of higher taxes, according to Puri.
In late October, Cal State Fullerton pegged OC’s 2003 job growth at 1% or 14,400 workers.
“We expect the general economic recovery to take place only in the second quarter. I don’t expect any job gains in the first quarter,” Puri said.
A December forecast from Orange-based Chapman University projects job growth of 1.6% or 23,000 jobs. Job growth is expected to come in flat for 2002.
The sales outlook is lackluster, with 52.2% of companies expecting higher revenue in the first quarter vs. 49% for the fourth quarter.
The general economy is among the primary concerns of businesses. Nearly 70% of respondents said the overall economy was the biggest issue, up from 68% for the fourth quarter.
Government regulation was next, with 13% respondents identifying that as the most important issue facing businesses.
“The major uncertainty is the war with Iraq. If that issue is resolved I expect a big bounce in the local economy and national economy,” Puri said.
