Business expectations for the first quarter rebounded from hurricanes and higher interset rates.
But rising labor costs stand to be a factor in 2006, according to a survey of Orange County chief executives, business owners and managers.
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California State University, Fullerton’s first-quarter business expectations index is at 85.5, reversing a dip during the past two quarters.
The index was 75.9 in the fourth quarter and 83.6 in the third quarter. Its recent high was 91.3 for the second quarter of last year.
A reading of 50 or more indicates executives are bullish about prospects in the quarter. The index is done in association with the Business Journal.
The drop in the index during the past two quarters came as the Federal Reserve continued to raise interest rates and hurricanes hit the Gulf.
The overall economy continues to be the biggest concern, with 44% of those surveyed listing it as their main worry.
But rising labor costs now weigh as heavily as do government regulations, at 13% and 14% of respondents, respectively.
Roughly 74% of respondents expect their labor costs to jump in the first quarter, up from 49% in the fourth quarter survey.
“This is a significant change in the trend of moderate wage increases of the last year,” said Anil Puri, dean of the College of Business and Economics at Cal State Fullerton. “They are concerned that inflation is going up and wages have stayed very low for several years now. Everybody thinks labor costs will now start picking up.”
Last week, Gov. Arnold Schwarzenegger said he’d support a $1 increase in the minimum wage to $7.75 an hour.
Schwarzenegger twice previously vetoed minimum wage increases.
“I’m really disappointed to see Schwarzenegger wants to increase minimum wages,” said Alex Bhathal, executive vice president of privately held Raj Manufacturing Inc., a Tustin-based maker of women and children’s swimwear. “Actions like this seem counter to what he had promised for business.”
Raj Manufacturing has about 400 workers in OC. It’s one of the few apparel makers to produce here.
Bhathal said his company is looking to put future production growth outside California but maintain its OC presence “as long as it’s economically feasible.”
Executives who expect overall business activity to improve or stay the same increased to 89% in the first quarter, from 84% in the prior period.
Slightly more than half of the executives polled expect no changes in their workforce in the first quarter, with 7% planning to cut jobs,down from 11% in the fourth quarter. Forty-one percent expect to hire more people in the quarter, up slightly from the past quarter.
About 81% of respondents expect to post a sales gain this quarter, up from 64% heading into the fourth quarter,and a reversal of a downward trend in the past three periods.
Profits are seen rising by nearly 72% of respondents, up from 57% last quarter.
The survey was conducted from Dec. 13 to Dec. 21. Of the 705 businesses contacted, 16%, or 110, responded.
