There was a time when Orange County was known more for manufacturing than multimillion-dollar homes.
Back in 1990, one in five people here worked in manufacturing. A lot of others were connected to the sector.
But the end of the Cold War and the aerospace downturn of the early 1990s erased tens of thousands of those jobs, gutting manufacturing here.
At least that’s the perception.
There’s little doubt about the aerospace crash and its impact on manufacturing here. But the reality is manufacturing still is big in OC,and it’s rebounding from the downturn of the early 2000s recession.
OC ranked No. 10 nationally last year based on a yearly average of manufacturing jobs done by the federal Bureau of Labor Statistics.
With 183,200 manufacturing workers, the county is up from No. 12 in 1999 and No. 14 in 1994, the tail end of the aerospace crash.
The only larger West Coast manufacturing hub is Los Angeles, which ranked No. 2 nationally last year. Los Angeles and OC combined make up the nation’s largest manufacturing region.
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About 12% of OC’s workforce is in manufacturing. Among top 10 regions, only Detroit has a bigger percentage of workers in manufacturing at 14.5%.
Still, there’s no denying manufacturing is a long way from its peak here. The county’s manufacturing job base has shrunk by half since 1990, when it had 384,000 workers.
Along with the aerospace crash, the technology downturn of 2001, the recession and the high cost of doing business here have taken their toll. Many manufacturing jobs have gone to Mexico or Asia, never to return.
Reversing Losses
But what’s interesting is that the losses have started to reverse in the past year.
“A lot of people have the impression the jobs have gone away because of the job declines in the past,” said Jack Kyser, chief economist for the Los Angles County Economic Development Corp. “We are still big fans of manufacturing.”
OC scores even higher,No. 8 nationally,in a report done by Kyser’s group.
In that ranking, Los Angeles came out on top. Excluded are Philadelphia and Boston, because Los Angeles County Economic Development Corp. defined those areas more narrowly than the Bureau of Labor Statistics does.
The benefit to the county is that manufacturing still pays better than many other jobs, especially for those who don’t have a four-year college degree. The sector is a vital source of move-up jobs for the county’s Hispanic and other immigrants.
Last year, manufacturing jobs paid $34,244 on average, versus $19,300 for retail and $11,900 for hotel and other hospitality jobs.
“Manufacturing traditionally has provided a lot of good jobs,” said Howard Roth, chief economist at the state’s Department of Finance.
The county has fared better than the nation in manufacturing. From the recent high-water mark of manufacturing jobs in 1999, the nation’s manufacturing employment plunged 17% to 14.3 million workers by 2004.
Among the largest manufacturing hubs, New York was the biggest loser in the five-year period, losing nearly a fourth of its manufacturing jobs.
Chicago lost 23% of its manufacturing workers during the period. Los Angeles dropped 22%.
Only Houston Better
OC lost 14% in the period, with only Houston faring better.
The county also fared better than most of California in the five years. With the tech downturn, San Jose lost 28% of its manufacturing jobs and went from No. 10 nationally to No. 12 (switching places with OC).
The greater San Francisco area lost 18%. San Diego dropped 15%.
In OC, manufacturing turned the corner last July and now is at 185,000 jobs, about 2,000 more than a year ago.
Opinions are divided on why costly OC is outpacing other cities. But it has something to do with economic diversity.
Detroit closely is tied to the success of automakers. San Jose lives and breathes tech. Aerospace is dominant in Seattle.
OC’s manufacturing is spread across tech, aerospace, medical devices, apparel, machinery, plastics and others.
The county’s diversity doesn’t bring heady gains, as seen in Silicon Valley in the tech boom. But it does buffer against volatility and wild downturns in one segment.
During the aerospace crash of the early 1990s, medical production here held steady while tech began to surge.
Likewise, during the tech downturn of a few years ago, local manufacturing got a lift from rebounding aerospace and continued biomedical growth.
The county is “interdependent on a lot of different types of manufacturing,” said Karl Jahnke, senior business development representative at California Manufacturing Technology Consulting in Los Angeles, a group that helps manufacturers become more efficient.
A mix of old and new has boosted OC of late, according to Kyser.
“Right now we’re benefiting from a recovery in technology and also a modest recovery in aerospace,” he said. “A lot of Department of Defense work has come into Southern California in the past few years.”
Even tech manufacturing, hit hard starting in 2001, is rebounding. While still way off its high of nearly 52,000 workers in 2000, computers and electronics production has climbed nearly 5% from a year earlier to 42,800 in April.
Old-line manufacturing, once thought left for dead in OC, is bouncing back, too. Fabricated metal production went from a peak of 26,000 in 2001 to a low of nearly 21,000 in late 2002. Now it’s at 24,000 workers.
Apparel, a segment under heavy competition from plants in China and elsewhere, has tacked on about 900 jobs in the past few years.
But the recent gains only have made a dent in the 200,000 manufacturing jobs lost since 1990. The county only can defy national trends to a point, according to economists.
Since World War II, the longest national expansion in manufacturing jobs came in the 1960s when production jobs rose by a fourth to more than 18.5 million workers by the close of the decade.
Manufacturing went through growth and decline before it reached its highest point of 19.7 million in mid-1979. Since then, the sector has been in decline.
Freer trade and the emergence of China, Mexico and other global manufacturing hubs has been a big factor. At the same time, the nation has shifted more toward services.
And manufacturers still here have become better at making stuff with fewer people by using robotics and computers.
“The fact is the economy has expanded away from tangible products to services,” said David Huether, chief economist at the National Association of Manufacturers in Washington, D.C. “If you combine that with overall productivity, then there are fewer manufacturing workers.”
The manufacturing decline from 2000 to 2004 was, by far, the steepest of the past 25 years. The nation’s manufacturing workforce is the lowest it’s been since the 1950s, when the population was much smaller.
OC’s manufacturing rebound likely is just a reprieve in a longer-term decline, according to economists. The sector is unlikely to ever return to its glory days.
What’s likely to remain here is specialized manufacturing of products that are profitable enough to be made in a costly setting or those that have to be here.
“We are going to slowly lose manufacturing that is not sophisticated, that requires low-skill labor,” said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange.
An example of sophisticated manufacturing: medical devices.
The county’s largest medical device makers, including Irvine-based Edwards Lifesciences Corp., Ful-
lerton’s Beckman Coulter Inc. and others, employ some 11,000 workers here, according to the Business Journal’s most recent list.
Medical device makers face regulatory issues that make shifting production harder. And their products command prices that can afford OC’s high labor and other costs.
Ditto for drug makers such as Irvine’s Allergan Inc. and Costa Mesa’s Valeant Pharmaceuticals International.
OC’s electronics makers have carved out a niche by focusing on quick turnaround of circuit boards and other products that would take weeks to get from China.
Memory Vulnerable
But one segment is vulnerable: computer memory products.
Fountain Valley-based Kingston Technology Co. and others employ about 2,000 people here assembling memory boards and cards, considered commodities.
And China is calling. Kingston is expanding its production in Shanghai, though so far it’s held its OC workforce relatively stable.
The county’s chip sector and its poster company, Irvine-based Broadcom Corp., could be seen as the future of tech here. Broadcom employs hundreds of engineers here designing chips but contracts out to plants in China and elsewhere for production.
In the near term, the greatest threat to manufacturing here isn’t from China but other lower-cost places in the U.S.
In the past few years, companies such as military parts maker Ceradyne Inc. and others have opted to expand elsewhere rather than here, citing workers’ compensation insurance costs, soaring housing costs and other well documented issues.
Nevada’s Siren Song
“It’s very difficult for companies to keep their businesses in Orange County,” Adibi said. “They’re moving to the Inland Empire or they’re going to Nevada or Arizona.”
The next step is China or India, Adibi said.
Jahnke of California Manufacturing Technology Consulting isn’t so sure. OC’s universities, engineers, skilled labor and quality of life make it attractive, he said.
Besides, the cost of moving to Nevada rarely pays for itself, he said.
“People are looking for an excuse to stay, and they’re looking for an excuse to come here,” Jahnke said.
Many say OC is better positioned than other cities to keep manufacturing.
“There’s always going to be some manufacturing in Orange County,” Roth said.
