Cautious optimism is the mood of top local executives, according to the Orange County Business Expectations Index.
The latest quarterly index reading checked in at 91.3, the third-highest level since the survey started in 2002. That’s up a bit from last quarter’s 89.7. A reading of 50 or more indicates executives don’t expect a downturn in the economy in the next three months.
The index, based on a poll of OC chief executives, business owners and managers, is done by California State University, Fullerton, in association with the Business Journal. The highest reading ever was 94.9 in July 2004.
“The general message from the survey is that executives are still a little bit cautious,” said Anil Puri, dean of the College of Business and Economics at Cal State Fullerton. “They expect their profitability to be better, but they are not ready to hire a large number of employees.”
Nearly 44% of respondents said they plan on adding workers in the quarter. Six percent said they intend to make cuts. About half, 51%, expect to keep employment steady. That’s up from 49% last quarter.
Labor costs aren’t expected to rise, according to 44% of companies that responded.
Gov. Arnold Schwarzenegger is getting high marks from executives. About 88% of respondents approved of the governor’s policies, with 80% believing that they were good for Southern California.
In his State of the State speech in January, the governor detailed his key goals: take redistricting power from the Legislature, establish merit pay for teachers, convert state worker pension plans to 401(k)-type investment plans and establish strict spending limits for the state budget.
“It appears that there is strong support for Schwarzenegger’s initiatives,” Puri said.
Last week, the governor scrapped his pension reform plan.
About 72% of OC executives expect to post a sales gain this quarter, down slightly from 75% last quarter. Profits are seen rising at 68% of the companies, up from 64% last quarter.
“Businesses still have a lot of cash and they’re putting more of that to work,” said Gary Lisenbee, president of Newport beach-based fund manager Metropolitan West Capital Management LLC. “We’re seeing a fair bit of spending going to technology.”
Lisenbee said his company is in expansion mode.
“In the past six months, we’ve taken more office space and we’ve bought additional equipment such as computers,” he said.
Overall, though, 62% of respondents don’t expect to change their stock of inventory or equipment in the coming quarter, versus 50% last quarter. Some 33% do expect to increase their inventory, down from 41% last time.
A significant note about this quarter’s survey: Upheaval in Iraq no longer registers as a top concern among many OC executives, as it did in past quarters. Instead, 45% of executives see the overall economy as the chief concern, followed by government regulation at 15%.
Other top issues on executives’ minds: 7% cite global competition, 5% said labor costs and 5% worry about credit availability amid rising interest rates.
Cal State Fullerton’s Puri said he expects credit availability “will be more of a concern” in the future as rates rise further.
Executives at about 14% of the 755 companies responded to the survey. That’s in line with last quarter.
