Orange County chief executives, business owners and managers took comfort in the big stock gains of 2006, an orderly housing slowdown and stable interest rates.
After two quarters of decline, sentiment among the group is rebounding, according to California State University, Fullerton’s quarterly business expectations survey.
The index is at 83.1 for the first quarter, a marked rebound from the fourth quarter and a six-month high. A reading of 50 or more indicates executives expect growth in the quarter.
Sentiment declined sharply for the fourth quarter, slipping to 69.9 from 81.7 or higher in the prior three quarters.
The rebound this quarter “has to do with continued low interest rates and a very healthy Christmas season,” said Anil Puri, dean of the College of Business and Economics at Cal State Fullerton. “It reflects the general upbeat consumer spending. So long as that stays healthy, it benefits all the businesses.”
The index hit a high of 94.9 in summer 2004. It hit a low of 31.6 at the start of the Iraq war in spring 2003.
This quarter’s reading is the highest since April’s 88.7.
Last quarter’s reading was the index’s most recent low, sinking below the previous low of 75.9 that came after 2005’s Hurricane Katrina.
This quarter, some 46% of respondents ranked the overall economy as their main concern, slightly up from 45% in the fourth quarter.
Businesses expect sales to increase,68% of respondents see sales rising in the first quarter, up from 66.7% in the fourth quarter.
“There’s a definite change from the last quarter in businesses’ perception about the state of the economy and their own businesses,” Puri said. “Their projections for the increase in revenue and profits have improved.”
About 65% of executives expect higher profits in the first quarter, versus 60.8% a quarter earlier.
Although they are optimistic about sales, company executives expect the cost of doing business to rise, especially payroll.
“Labor markets are tight, and the unemployment rate is very low,” Puri said. “It’s hard to find workers,low skilled or high skilled. This means higher wages.”
The national unemployment rate was 4.5% in November, according to the Bureau of Labor Statistics. In OC, it was 3.4% in November, according to the state’s Employment Development Department. That was up slightly from October’s rate of 3.1% and down from 3.6% a year ago.
Roughly 60% of respondents said they expect salaries and other labor costs to rise in the first quarter, up from 58% in the fourth quarter.
About 35% said they expect no change in labor costs, up from 33% in the prior quarter.
Only 5.8% see labor costs falling, down from 8.4% in the fourth quarter.
The housing market’s turn hasn’t raised much alarm, Puri said.
“In October we predicted a slowdown but not a collapse,” Puri said. “There is not an immediate bottom of the market. I think people still expect housing to continue to slow down in an orderly way.”
Housing prices have stopped their runaway rise and even declined in parts of the county. But on average, they’ve held steady on a yearly basis.
The median price of an OC detached home in November was $699,200, up 2.6% from October and an increase of 0.5% from a year ago, according to the California Association of Realtors.
November’s median sales price, the most current figure, is off 4.3% from the county’s record high of $729,310 in April of last year.
The realtor association excludes condominiums.
Including condos, the median price of a home sold here was $616,000 in November, the same price as a year ago, and down 3.4% from the county’s record high of $646,000 set in June, according to La Jolla-based market tracker DataQuick Information Systems, a unit of Canada’s MacDonald Dettwiler and Associates.
Concerns about an impending recession also have eased, Puri said.
Inflation, interest rates and commodity and oil prices held steady during the last half of 2006.
“All of these things have allayed any fears of a significant slowdown,” he said. “There’s an overall sense of less volatility and less risk.”
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