Jobs, War, Rising Costs Nip Business Optimism
By SHERRI CRUZ
Optimism among executives for the second quarter has been tempered from the start of the first quarter, though the outlook still is better than at any time last year.
That’s according to the Orange County Business Expectations Index done by California State University Fullerton, with the Business Journal. The survey was done before Friday’s strong national jobs report.
The index, designed to reflect the overall mood of executives for the new quarter, slipped from a high of 91.5 for the first quarter to 88.1 for the second. Even so, executives still are more upbeat than they were at the start of the fourth quarter, when the index hit 84.1, a high for 2003.
“Employers still are optimistic about growth,” said Anil Puri, dean of the College of Business and Economics at Cal State Fullerton and director of the survey.
Blame the softer outlook on the slow rate of job growth nationally, Puri said.
Even so, any number higher than 50 on the index reflects optimism in the regional economy. This quarter was the second highest in the 10-quarter-old survey.
The index’s subtle slip was lost on some businesspeople that said their operations are growing with the recovering economy.
“The first quarter was better than any quarter of 2003,” said Dennis Backer, chief executive of Media By Design in Irvine, a marketing services company. “And, based on the calls and inquiries and proposals that are being accepted, I am very optimistic about the second quarter.”
Tulsa, Okla.-based BSW International Inc.’s Irvine office had a record first quarter and plans to hire senior managers and administrative people, according to Tracy Kuhar-Chandler, manager of business development.
BSW provides architectural and design services for stores and hotels, among others.
Then there’s the nonprofit indicator.
The Juvenile Diabetes Research Foundation’s Orange County Chapter saw a serious decline in donations for 2003, said Louise Cummings, executive director.
But at the group’s February gala, it raised more than $880,000 in one night, which Cummings said is a signal that the economy is getting better.
The survey behind the index shows executives are less worried about the overall economy: 43% said it was the most significant issue facing their business, down from 51.8% in the prior quarter.
Many are worried about interest rates, war and terrorism. The high cost of housing, gas and health and workers’ compensation insurance also are concerns, according to the survey.
“Workers’ comp is out of control,” said Jason Hartman of Platinum Properties International, an Irvine home brokerage. “And, being in real estate, our workers’ comp isn’t even that expensive compared to some other industries.”
Others said high gas prices will limit spending.
“We may see less discretionary income spending due to fuel costs,” BSW’s Kuhar-Chandler said. “This will affect retail spending, which will reduce the development opportunities within the Western region.”
Irvine BMW reported a 25% rise in new car sales in the first quarter, versus a year earlier and expects a strong second quarter, according to Michael Chadwick, general manager.
Even so, workers’ comp, gas prices and uncertainty in the Middle East are concerns, he said.
War and terrorism continue to put a damper on the hospitality industry. For Ron Nugent, director of sales at the Atrium Hotel Orange County Airport, group business is slower than in the first quarter. For him, the economy in general still is his biggest concern.
“As goes the stock market, so does the Irvine hotel industry,” said Martin Driskell, general manager of the Crowne Plaza Irvine. “We have not been experiencing much improvement in the Orange County Airport area, nor do we anticipate any change during 2004.”
But Driskell said he expects a 5% gain in sales and profits by year’s end, with business picking up in June.
As businesses emerge from the first quarter, a little more than half of them have no plans to hire or fire. About 38.9% this quarter compared to 39.1% last said they expect to hire workers. Nearly 8% said they plan to cut workers, versus 8.2% last quarter.
At the national level, Pam Tabert, a staffing specialist at Manpower Inc.’s Irvine Spectrum office, said the employment company’s recent survey showed that businesses are optimistic about job market gains.
“Not since the beginning months of 2001 have hiring expectations been this strong,” she said.
But many companies still are cautious about hiring. Allan Russo, director of sales and marketing for Talon Computer Associates Inc., a computer software consultant, has more customers in the pipeline for this quarter but only plans to hire contract workers.
“Talon believes the economy will continue to improve,” Russo said. “We are, however, still concerned about offshore outsourcing competition and also how the economy will react to unforeseen external events.”
Many companies still have concerns about terrorism and housing.
“One of our biggest hiring challenges is the high housing cost for staff, causing pressure to increase salaries,” Platinum Properties’ Hartman said.
Some out-of-state manufacturers are cutting operations in OC as part of their corporate restructuring, including Stamford, Conn.-based MeadWestvaco Corp. and Marietta, Ga.-based Graphic Packaging Corp. (see stories, page 3).
The survey’s biggest standout: increased confidence in Gov. Arnold Schwarzenegger’s $15 billion bond plan to bail the state out of its economic crisis.
This quarter, 70% of those surveyed said they think the plan will be helpful to the county, compared to 55% who thought the same last quarter.
