An uptick in business expectations in a recent survey halts four quarters of growing pessimism among Orange County executives.
But that doesn’t mean they’re optimistic.
California State University, Fullerton’s business expectations survey suggests the economy will remain weak in the second quarter. The survey’s sentiment index hit 37.3 for the quarter, the third lowest in the survey’s history.
Readings below 50 indicate expectations of economic contraction for the coming quarter.
The pessimism is less than last quarter’s low of 29.1. But it’s well below the optimistic 70.6 level from a year ago.
The main concern for 57% of the chief executives, business owners and managers responding to the survey has shifted from housing market and subprime jitters to a focus on the health of the national economy.
Some relief may come from the Federal Reserve cutting interest rates by three percentage points since last fall, according to Anil Puri, dean of the College of Business and Economics at Cal State Fullerton.
“But caution still prevails,” he said.
Housing Impact
More than half of the respondents said the housing downturn had a “somewhat” or “moderate” effect on their businesses.
Less than a third said housing was causing “a lot” or “devastating” problems to their businesses.
And 22% said the housing market caused no problems at all.
Employment
The employment outlook has dimmed for the third straight quarter as the number of businesses intending to cut jobs rose to 27% from 21% a quarter ago.
The number of businesses planning to hire more people holds steady at 25%.
Some 48% said they won’t make any changes to their workforce, down from 54% last quarter.
“There’s no widespread job cutting,” Puri said. “Firms are just more cautious in hiring.”
There was little change in the perception of the economy as 56% of the respondents said they expect activity for the regional economy and their own industries to stay steady or improve.
The response is similar to last quarter’s 55% response, and the previous quarter’s 59% response.
In their own industries, 39% of respondents are looking for growth, up from 22% last quarter.
There was little change in the number of businesses expecting their industries to slow down, which represented 33% of the respondents, compared to 36% last quarter.
Profits
Profit expectations fell for the fifth consecutive quarter as 36% of the businesses expect to make less money, up from 28% last quarter.
Thirty-five percent said they expect to earn more, which is down from 40% last quarter.
Sales expectations are slightly lower for the quarter as more than half of the respondents see a decrease or no change.
Forty-two percent anticipate an increase in sales compared to 44% last quarter.
Labor Costs
Fewer businesses are expecting labor costs to rise as 35% foresee paying workers more, compared to 47% last quarter.
About 48% expect no change in labor costs, compared to 36% last quarter.
A better-than-expected first quarter led Newport Beach-based Mercedes dealer Fletcher Jones Motorcars to raise its second-quarter expectations.
“I feel like we’ve made a breakthrough,” said Garth Blumenthal, general manager.
Blumenthal said that management changes and a shift of its marketing focus to previous customers helped Fletcher Jones handle a slower economy.
But Blumenthal said he still feels cautious about the broader economy.
The Federal Reserve cuts eventually should make loans cheaper for buyers but it hasn’t happened yet, he said.
Robert Waltos, managing partner at Milwaukee-based Northwestern Mutual Life Insurance Co.’s Waltos Group in Newport Beach, agrees.
“The Fed’s moves should be good for everyone, but there’s still some pain out there,” he said.
People are becoming more optimistic, said Waltos, whose firm serves as a financial adviser to 450 businesses in the county.
His clients have felt the impact from the housing downturn, but they’re beginning to look at the long-term picture more, he said.
Waltos speculates housing may have another 5% to fall locally.
But he said the county could begin to recover earlier than the rest of the country after entering the downturn before most.
Waltos said he’s looking to add 30 financial advisers to his team of 90 by the end of the year.
