Business expectations of Orange County chief executives, business owners and managers retreated some for the third quarter after two quarters of rising optimism.
Even so, they remain strongly optimistic about their businesses and the economy, according to California State University, Fullerton’s quarterly OC business expectations survey.
The survey’s sentiment index is at 81.7 for the third quarter. A reading above 50 indicates executives expect growth in the coming quarter.
Sentiment has tempered a bit from the second quarter, when the index was at 88.7. It hit a high of 94.9 two years ago. The survey’s recent low point came after last year’s hurricanes, when it hit 75.9.
Falling stock prices and steadily rising interest rates are a factor, according to Anil Puri, dean of the College of Business and Economics at Cal State Fullerton.
“Businesspeople are concerned about the state of the economy and they are being cautious,” he said. “They are planning to reduce inventories and possibly reduce their work forces. At least they are thinking about it.”
Roughly 44% of survey respondents ranked the overall economy,factoring in interest rates and Wall Street’s slump,as their main concern, up from 37% a year ago.
Sixty percent of respondents said their companies expect to hold steady investments in inventory and equipment during the third quarter, in line with the past quarter. Nearly 30% see a rise. Twelve percent expect a decline, up from 7% in the second quarter.
Some see the rising cost of labor moderating in the quarter. Roughly 55% of respondents expect salaries and other labor costs to rise in the third quarter, down from 60% in the second quarter.
Thirty-eight percent expect no change in labor costs, up from 33% in the previous quarter. Just 6% see labor costs falling in the quarter.
About 54% of the executives polled expect no change in employment in the third quarter, down from 59% a quarter earlier. Roughly 9% plan to cut jobs, up from 4% last quarter and 7% a quarter earlier.
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Some 37% of respondents expect to hire more people in the quarter, slightly higher than last quarter.
Executives are keeping their eyes on the housing market, where prices continue to rise but sales are slowing.
Fewer sales concern Roy Ashton, chief operating officer of Anaheim-based Western Exterminator Co.
The company, in the midst of peak season for pest and termite services, is growing at a 5% clip each quarter, according to Ashton.
But as the housing market slows, demand for extermination work could fall, he said.
“It’s a tough market to compete in,” Ashton said.
Western Exterminator employs roughly 1,000 people in the Southwest, with about a quarter of them in OC.
There are “a lot of unknowns right now,” said Don Hinshaw, chief executive of Soff-Cut International Inc., a Corona-based maker of concrete saws and blades owned by Costa Mesa-based private equity firm Westar Capital LLC.
Soff-Cut has about 100 workers and isn’t planning to lay off any, Hinshaw said. The business sells to commercial construction companies.
“It’s like a big piece of onion,” said Hinshaw, who takes part in Cal State Fullerton’s survey. “It depends on what sliver you have of it.”
The survey was done from June 18 to June 28. Of the 676 businesses contacted by Cal State Fullerton, 14% sent responses.
