The mood of Orange County executives going into the third quarter is a little less optimistic than it has been for the past two years.
The Orange County Business Expectations Index for the new quarter fell to 83.6 from 91.3 last quarter. The latest reading is the lowest in two years, when it stood at 76.6 at the start of the Iraq war.
The index, which began in 2002, hit a peak of 94.9 a year ago.
The quarterly index is based on a survey by California State University, Fullerton’s Institute for Economic and Environmental Studies in association with the Business Journal.
Rising oil prices and short-term interest rates, coupled with terrorist attacks, are tempering sentiment, said Anil Puri, dean of the College of Business and Economics at Cal State Fullerton.
“This is the sharpest drop in the sentiment in the past two years,” Puri said.
But even the lower reading still shows OC executives, business owners and managers are optimistic,any reading above 50 indicates bullishness.
Respondents were mixed when asked about the performance of their businesses in the next three months.
Those who expect overall business activity to improve or stay the same this quarter came in at 87%, down from 93% last quarter.
About 76% of respondents expect to post a sales gain this quarter, up slightly from 72% last quarter. Profits are seen rising by 62% of the respondents, down from 68% last quarter.
About 40% of respondents said they intend to add workers in the quarter,down from 44% last quarter. Some 11% said they plan layoffs, up from 6% last quarter. Nearly 49% said they planned no workforce changes, the same as last quarter.
“This is consistent with the generally cautious approach at the national level,” Puri said.
Labor costs aren’t expected to rise, according to 46% of companies that responded. About 50% predicted their labor costs would rise this quarter, down from 52% a quarter ago.
Meanwhile, 58% of respondents don’t expect to change their inventory or equipment in the coming quarter, versus 62% last quarter.
Some, including Stephen H. Gordon, chief executive of Irvine-based Commercial Capital Bancorp, discounts the negatives in the survey.
“We are seeing a lot of good going on,” Gordon said. “We see growth in revenues, growth in earnings per share, loan originations and on the depositor side.”
High oil prices are a concern, according to Gordon.
“Does that in effect reach into the pocketbook of consumers, and take the consumer out of the economy?” he said. “If the consumer spends less, does this mean fewer toys for their kids, or not taking a vacation? This is a zero sum gain, as it has to come out of the economy somewhere.”
The Hilton Irvine/Orange County Airport is hoping last week’s attacks in London don’t limit recent gains in the hotel’s corporate meeting business.
“We’re seeing a pretty strong economy right now,” said Hilton Irvine general manager Ted Holmquist. “It’s certainly not to the level we saw in 2000, but we hope to see that by January. But with events like those in London,we know what happened to the economy after Sept. 11.”
Business, as measured in terms of room nights reserved by businesses, has jumped 50% since last summer, Holmquist said.
The survey was conducted from June 21 to July 4.
Of the 708 businesses contacted, 14% responded to the survey.
