OC’s Enviable Paradox: Jobs in a Downturn
By RAJIV VYAS
Orange County is in an odd but fortunate predicament.
As the California and U.S. economies gird for job losses this year, OC is projected to grow its employment base by about 1%, an extra 9,000 to 16,000 jobs, depending on who you ask. The gain, albeit small, comes after four years of OC outpacing the nation and besting the state for three years.
In fact, OC hasn’t seen a monthly decline in job growth on an annual basis for the past eight years.
Services, retail and government are pegged to account for the new jobs. Healthcare and defense also are growing, but those gains are offset by losses in technology and industrial goods. Homebuilding and public works are keeping construction workers busy, though not quite enough to temper the falloff in commercial projects.
There are several theories as to why OC is projected to add jobs this year. The oft-cited conventional wisdom: OC’s economic diversification of the past decade.
“There is one plus for us and that is we do not have a very high concentration in the sectors that have experienced most of the weakness,mainly high tech and manufacturing,” said Esmael Adibi, director and professor of economics at Chapman University. “Most of our jobs are in sectors that did not get hurt,construction, finance, real estate, services.”
But diversification, on its face, only explains why we aren’t doing any worse than the nation, not better.
The most positive take for OC is that the county is able to lure people and companies in other sectors even as it loses jobs in technology and manufacturing. Call it the quality-of-life factor, some economists say. Desirable places to live are apt to see more people and companies moving in than out, even during down times.
Another line of thinking is that the county’s service and government sectors are playing catch-up to OC’s economic and population growth of the past few years,still a testament to the area’s drawing power. Retailers, government and service firms all are adding jobs as a follow-on to the buildup of people and jobs that played out in the past few years. That secondary job growth could be enough to carry OC through a short and shallow national recession.
There’s also a chance that the county is lagging the rest of the nation, with the real pain still to come. Or maybe the job projections are just plain wrong.
Economists can’t offer any one compelling case for why OC is expected to add jobs this year. Several factors likely are work, including OC’s place at the center of Southern California coupled with regional development and demographics trends. The county’s industry mix also plays to its advantage.
But economists say OC’s drawing power as a place to live and work is a common dominator. That’s an edge OC has over other places, according to some economists.
“People move to Orange County because it remains a very desirable place to live,” said Keitaro Matsuda, a senior economist at Union Bank of California in San Francisco. “Once people move to a place, they create jobs. The job opportunity they create attracts more people.”
The quality-of-life theory supposes that OC is able to draw enough jobs to offset some high-profile losses, and then some. After all, tech companies slashed thousands of jobs here last year with more cuts to come. For one, San Diego-based Gateway Inc. this year plans to shutter its Lake Forest plant, which counts about 400 workers.
A high-profile example in the plus column is Ford Motor Co.’s Premier Automotive Group, which recently moved from Detroit to Irvine. In doing so, the Ford unit joins a host of Asian automakers here, including Mitsubishi Motor Sales of America Inc. and Hyundai Motor America, which came to the Southland to be near the ports of Los Angeles and Long Beach and ended up settling here.
“The lifestyle definitely is good here, and that is attracting a lot of people and companies here,” said Gurd-Ulf Krueger, vice president of market research at Irvine-based real estate venture fund Institutional Housing Partners.
The effect of county’s population growth in the past decade,growing 18% to 2.8 million people,can’t be underestimated, economists say.
Take state and local governments. With more people living here, government has been a notable factor in OC’s job growth in the past decade. In the early ’90s, state agencies and local governments employed around 105,000 people here, or slightly less than 8% of OC’s workforce. In 2001, 143,000 people were working in government, or 9.5% of the employment base here.
This year, Chapman University is projecting the government sector will outpace the overall economy by growing employment by 1.7% or almost 2,300 jobs. That could account for as much as 15% of OC’s projected new jobs this year.
But government is vulnerable, according to Howard Roth, chief economist at the state’s Department of Finance in Sacramento. Califor-nia has frozen hiring except for safety, he said, and local governments stand to feel the sting of the state’s budget deficit. The fast-growing University of California, Irvine, also has hit the brakes.
As a result, most of the projected job growth in state and local government stands to come from already approved projects.
Retail jobs also are growing in OC. Wal-Mart Stores Inc., Target Corp. and Wisconsin’s Kohl’s Corp. all are adding stores in OC. New retail jobs could account for about 20% of OC’s projected new jobs.
That leaves the service sector to create the bulk of new OC jobs. Real estate, finance, insurance and other service sectors are seen making up 70% of OC’s projected job gain, or as much as 11,000 jobs.
Several service companies are setting up or expanding OC operations. Among them is insurer Balboa Life & Casualty, a unit of Calabasas-based Countrywide Credit Industries Inc., which is expanding in Irvine with plans to grow from 350 to about 500 workers. Another is Wilmington, Del.-based MBNA Corp., which set up its Western U.S. regional office in Aliso Viejo last year.
Quality of life plays a big part in OC’s ability to lure service operations. Most serve the region, not just OC, so they don’t need to be here, per se. Places such as Phoenix are a lot cheaper. But OC’s workforce, new office space and lifestyle are strong selling points, particularly for the executives who head up the regional facilities.
The county also benefits from its proximity to Los Angeles, and the troubles its bigger neighbor is having. Los Angeles County, which supported OC’s economic growth just 10 years ago, is expected to lose jobs this year.
OC “has been a destination place for many L.A. companies,” said Krueger, who himself commutes every day from Los Angeles to Irvine. “Companies that want to stay in the Southern California area but want to move out of L.A. come to Orange County. Development-wise, it is newer than L.A. with a well defined infrastructure in terms of freeways and access to the airport.”
One Los Angeles company, mutual fund manager The Capital Group Cos., is planning a big OC expansion. The company has a 1 million-square-foot campus planned for Irvine that will house its current Brea operation and then some, including possibly its headquarters, some speculate.
But OC only need look to Los Angeles to see how fleeting quality of life and the economic growth it lures can be. Congestion, crime and high home prices are qualities OC shares to varying degrees with its neighbor. OC already has lost companies to the Inland Empire and other less costly locales.
Another cautionary note: OC still is in the early stages of an economic slowdown. The county’s job growth is slipping on a sequential, monthly basis, and projections of a positive year are based on a predicted national rebound in the second half.
“If the recovery does not take place, we could go wrong on Orange County,” Chapman’s Adibi said.
“We are going to have a significant data revision on Feb. 22,” said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp. “Sectors such as services and wholesale distribution could be revised downwards.”
A decade ago, the county lagged the nation going into recession and was hit harder. In early 1991, OC set out on 36 months of employment contraction. The county didn’t start creating jobs again until early 1994.
OC had a strong quality of life then, too, though it wasn’t strong enough to withstand the collapse of what were then its two major industries, aerospace and real estate.
A lot has changed. OC is more diversified and more resilient these days. Jobs are spread among healthcare, technology, defense and services. In that sense, OC is more like the nation than it was a decade ago.
“The reason why Orange County has been growing at a fairly good rate is because Orange County’s high-tech sector has not suffered a disaster as the one in Silicon Valley,” said Anil Puri, dean of the business school at California State University, Fullerton.
OC isn’t alone. San Diego also has outpaced OC in job growth for the past few years and is holding its own during the downturn, too. This year, San Diego is forecasted to add more actual jobs than OC and grow at a slightly faster clip, 0.8%. San Diego counts total employment of about 1.2 million people vs. OC’s 1.4 million.
OC also is lagging Riverside County, though OC’s eastern neighbor is smaller with about 1 million jobs and has a different type of economy. Since 1998, employment in Riverside has grown by 21.3%, vs. OC’s 15.85%.
