Orange County executives are entering the first quarter of the new year with mixed expectations that combine for a slight dip in overall business outlook, according to the latest quarterly index by California State University-Fullerton’s Mihaylo College of Business and Economics.
The school conducts a business-sentiment survey of local executives and business owners at the end of each quarter to gauge the outlook for the coming three months. It asks questions pertaining to overall economic and business strength, hiring plans, sales and profit growth rates, and inventory, among other things.
The first-quarter index registered at 82.6, a slip from 83.8 in the fourth quarter. The current reading compares with 91.5 for the opening quarter of last year, when local executives exhibited a significantly more positive view. The optimism held with a reading of 92 for the second quarter of last year before falling to 81.7 for the third.
A level of 50 or more generally indicates expectations of growth in business.
The latest index was based on responses from 54 participants. About 44% of the survey pool are representatives of companies with more than 100 employees; 33% have 20 to 100 employees; and the remaining 22% have workforces smaller than 20.
Most of the respondents to the latest survey—89%, roughly in line with a quarter earlier—said they expect “overall business activity to improve or stay the same” in the next three months.
The proportion was much smaller when respondents considered their own industries—54% said they expect “significant or some” growth in their sectors,” on par with the outlook for the prior quarter. About 11%, versus 8% last quarter, said their sectors are likely to weaken. The remaining 35%, versus 39%, said they expect business to remain stable.
Building construction management company Cumming is entering the quarter with expectations of modest growth, said Brian Ruttencutter, chief financial officer in the Los Angeles-based firm’s Aliso Viejo office.
“I see the domestic market continuing with a modest expansion in 2016 and the international markets we are in—including the Middle East, the EU and Asia—providing growth potential, as well,” Ruttencutter said in an email. “That will provide Cumming with continuing opportunities to grow … especially in ‘hotter’ regional markets, such as the Bay Area and the Northeast, and in some of our traditional industry sectors, such as hospitality, healthcare and technology.”
He said the company “foresee[s] strong growth in revenues, hiring and earnings.”
Cumming has more than 400 employees, about 20 of them in Aliso Viejo. It had recent revenue topping $100 million, a double-digit growth over the past three years, according to Ruttencutter, who added that challenges exist, including “the threat of international terrorism, higher interest rates, the slowdown in China and the unknowns of an election year.”
Survey respondents’ expectations on the hiring front were generally curbed, according to the CSUF study. About 33% of the pool, down from 41% last quarter, said they intend to increase their workforces during the quarter. About 59%, versus 54%, said they expect to keep their labor forces the same, while 7% said they plan to cut jobs, up from 6%.
Projections for revenues and operating profits were improved, leading Anil Puri, dean of the Mihaylo School and head of the quarterly survey project, to infer that “sentiments are down, psychologically … while the real side of business is expected to get better.”
He said the “political climate, terrorism and interest rate hike … as well as tax-reform issues that aren’t expected to go anywhere” could somewhat dampen prospects.
Respondents who said they expect stronger sales in the next three months accounted for nearly 67% of the participant group, up from 52% last quarter. About 7%, down from 13%, said they anticipate lower sales, and 26%, versus 35%, said they expect little change.
About 60% of participants, up from 42% last quarter, said they expect higher profits. Eleven percent, versus 13%, said they anticipate lower profits.
Growing interest by employers in reviewing and enhancing employee retirement plans is expected to boost business for QBI LLC, a retirement-plan consulting and administration firm with offices in Irvine and Los Angeles. It has 80 employees and services more than 3,200 retirement plans, working with financial advisers and certified public accountants to help their clients operate various programs, such as 401(k) plans.
“We have a positive outlook for 2016 as more and more employers are reviewing their existing retirement programs to determine if the plan is doing what it was established to do, if eligible employees understand the benefits of the plan … and making sure that the plan is operating in accordance to the regulations,” said Executive Vice President Peter Stephan, who joined the firm in 2014 to help lead the Orange County office.
He said the company has seen more professional-services firms looking to “go beyond a traditional 401(k) plan and add an option known as a defined benefit pension plan.” It’s also noticed “more and more closely-held business owners … enjoying the tax-deductible benefits of a qualified retirement plan as a vehicle for diversification, retirement accumulation beyond their business, estate planning purposes and employee attraction and retention.”
The CSUF study asked participants to rank their biggest concerns among a number of categories. The state of the overall economy got the most votes, accounting for 41% of responses while appearing less of a concern than it was three months ago, when 54% of the responses pointed to it.
Government regulation followed, with 24%, up from last quarter’s 17%. Labor costs were a major concern to 13% of the survey pool versus nearly 6% last quarter.
The study also asked what respondents considered some of the biggest threats to the U.S. economy. Congressional inaction came in at the top, with 52%, compared with 32% last quarter. The Federal Reserve Bank’s interest rate increase was No. 2 with 23%, versus 17% last quarter; and the performance of China’s economy followed at 10%, down from 30% last quarter.
The bulk of the respondent group—about 68%—said they expect median housing prices to rise by up to 5% by the end of this year. About 19% expect the increase to be by more than 10%, and the remaining 13% said housing prices will likely inch lower, by up to 5%, through the year.
Yu is a freelance contributor to the Business Journal
