Executive expectations for business growth in Orange County are at a low.
A survey by California State University, Fullerton for the first quarter saw the fourth consecutive drop in executive sentiment amid growing fears of a recession, according to Anil Puri, dean of the College of Business and Economics at Cal State Fullerton.
The survey’s index came in at 29.1, down from 41.5 for the fourth quarter, meaning less than 30% of executives surveyed expect to see growth in the quarter.
“It appears that finally the gloom is spreading beyond the housing sector,” Puri said.
The index hit a peak early last year at 83.1 and dropped off throughout the year as more housing and credit problems surfaced.
“It will be a serious situation if it drops again,” Puri said.
The survey shows sentiment of local chief executives, business owners and managers is worse than the previous low of 31.7, which came after the onset of the Iraq war in 2003.
A reading of lower than 50 indicates executives don’t expect growth in the quarter.
The credit crisis brought on by bad subprime loans was a factor in the survey, which was done Dec. 17 to Dec. 28.
Still, most respondents said the credit crisis hasn’t had a major impact on their businesses. Only 15% said the problem has had a considerable to devastating effect on their businesses. The rest said it has had no impact to a moderate one.
The outlook for hiring dimmed with about 20% of respondents saying they will lay off workers in the first quarter, up from 13% in the last survey.
About 54% said no change would be made to their workforce, which is down from 61%.
A quarter said they would hire more, the same as in the fourth quarter.
“The consolation is that the majority are not going to cut back,” Puri said.
For the six years the survey has been done it has been a “pretty good” leading indicator of employment, he said.
Expectations for revenue edged lower for the fourth straight quarter.
The majority of respondents, 44%, said they are forecasting an increase in sales for their businesses in the first quarter, down from 48% the prior quarter. About 28% said they were looking for revenue to decrease, up from 19% in the prior quarter.
Twenty-seven percent predicted no change, down from 33%.
The health of the overall economy was listed by 56% of the respondents as their most important concern. About 7% said the availability of credit was the No. 1 problem. Six percent cited government regulation. Five percent cited labor costs.
Concern over the general economy has led some executives to brace for a recession. Survey respondent Ivo Tjan, chairman of CommerceWest Bank in Irvine, said he believes there is a 60% chance of a recession.
Tjan said that defaults and delinquencies on home loans will spread into other areas, including credit cards, which will hurt consumer spending and in turn hurt business.
“Consumer spending will be key to watch,” Tjan said.
Tjan said he plans to add to his staff of 50 but expects layoffs in the county to increase.
